Title: Campbell v. Campbell
Citation: 198 Kan. 181, 422 P.2d 932
Docket Number: 44,750
State: Kansas
Issuer: Kansas Supreme Court
Date: January 21, 1967

198 Kan. 181 (1967)
422 P.2d 932
MAX L. CAMPBELL, Appellee,
v.
RALPH L. CAMPBELL, Individually as President, Treasurer and Director of Hydro-Flex Corporation, Inc., and HYDRO-FLEX CORPORATION, INC., a Kansas Corporation, Appellants.
No. 44,750

Supreme Court of Kansas.
Opinion filed January 21, 1967.
J.A. Dickinson, of Topeka, argued the cause, and Sam A. Crow, Ralph E. Skoog, and Bill G. Honeyman, all of Topeka, were with him on the briefs for the appellants.
Ward D. Martin and Harvey D. Ashworth, both of Topeka, argued the cause, and A. Harry Crane, Arthur L. Claussen, John R. Hamilton and Donald D. Barry, all of Topeka, were with him on the briefs for the appellee.
The opinion of the court was delivered by
*182 HATCHER, C.:
This appeal stems from a controversy over an alleged agreement to maintain equal ownership of the controlling stock of a corporation.
We shall state briefly the basic facts which are not in dispute.
The plaintiff and defendant are brothers. There are other nominal defendants but they may be ignored for the purpose of this opinion. In 1957 plaintiff and defendant were associated in the business of installing hydro heating equipment in Spokane, Washington. The plaintiff conceived the idea of a flexible metal hose coupling and fitting. The two brothers worked together in perfecting the idea and an application for a patent was made by the two as co-inventors.
The brothers returned from Spokane, Washington to their home in Topeka, Kansas and in July of 1958, embarked upon a joint adventure for the manufacture and sale of the patented items. It was understood that each would share equally in the venture. The plaintiff was primarily engaged in production while the defendant devoted his attention to sales and promotion. The operations were conducted under the name of M &amp; R Development Company and the trademark "Hydro-Flex" was also used.
The business grew and additional financing became necessary. In the early part of 1960, the brothers organized a corporation known as Hydro-Flex Corporation, Inc. for the sole purpose of raising additional capital to promote the manufacture and sale of the articles covered by their jointly owned patent. The patent, which was the most valuable asset of the joint venture or partnership, was assigned to the corporation. The corporation was authorized to issue 500 shares of stock of which 127 shares were transferred to each of the two brothers. An additional 169 shares more or less had been issued and were outstanding at the time material to this controversy. Of this amount 25 shares were issued to a third brother in consideration of a mortgage on the homestead, the proceeds of which went into the business. This stock was later transferred to others.
The two brothers continued with equal salaries and bonuses and with the same duties and responsibilities in carrying on the business after the corporation was formed.
During the month of December, 1963, the defendant started buying the outstanding stock which had been issued to those other than the two brothers. His purpose was to gain control of the *183 corporation. The defendant bought the stock secretly. He did not advise the plaintiff  "No, he would have stopped me if I had."
On February 5, 1964, the plaintiff was told by others that the defendant was buying the stock. The plaintiff went to defendant and demanded one-half of the stock which he had purchased. The defendant refused to sell. The action from which this appeal stems followed.
We do not propose to indulge in a more detailed statement of the facts which are disclosed by 600 printed pages of conflicting evidence and documentary proof. It would be of no service to the two litigating brothers or their associates to spread on a permanent record the unfortunate facts which would best be forgotten.
We will proceed to consider the procedural questions which must determine this litigation.
The amended petition was in five counts but the gravamen of the charge was that a joint venture agreement has continued and a confidential or fiduciary relationship has existed at all times pertinent and still exists between Max L. Campbell and Ralph L. Campbell in the business and that 
We note by emphasis the three charges of misconduct which will become material in connection with the master's findings.
The petition further alleged that since the acquisition of the additional stock by the defendant, plaintiff had been divested of all powers, rights, duties and responsibilities in connection with the management and control of the business. The Hydro-Flex Corporation, Inc. was made a nominal party by the petition.
The defending brother answered in some detail but the answer was in effect a general denial of the allegations of the petition. He also alleged:
We emphasize the word "forever" as neither it nor a similar adverb is used in the petition and the word will also become material in connection with the master's findings.
At the pretrial conference a master was appointed by consent of the parties.
After an extended hearing the master filed his report. In the letter of transmittal he stated the issues on the agreement as to the joint adventure as follows:
The master made limited findings and a conclusion, which read:
"FINDINGS OF FACT
*185 "CONCLUSION OF LAW
The plaintiff filed objections to the master's report, a motion to require the master to make additional controlling facts and a motion to set aside the master's report.
The basis for the plaintiff's somewhat lengthy objections and motions may be summarized:
1 The master failed to set forth the controlling facts on which his ultimate conclusion of fact must be based;
2 failed to make any findings or conclusions on the issue of confidential or fiduciary relationship;
3 failed to make any findings or conclusions on the validity of the stock purchases by the defendant under the articles of incorporation and by-laws, and
4 failed to make any finding as to an agreement to maintain equal ownership of the stock in the corporation as of the time pertinent to the controversy  the finding that there was no agreement that the stock ownership would "always" remain equal, being beyond the issue in the case.
The trial court considered plaintiffs' objections and referred the motion for additional controlling findings of fact and conclusions to the master.
The master reported by letter in which he stated that his finding No. 7 was conclusive as to plaintiff's right to recover and in his opinion other matters were irrelevant. The master concluded:
Plaintiff next filed a paper styled "Objections to Master's report, motion for receiving further evidence, motion for entering of plaintiff's requested findings of fact and conclusions of law and the rendering of judgment in accordance therewith."
The trial court, after a hearing, reopened the case for the purpose of hearing the testimony of the attorney for the corporation. Following the hearing of the additional testimony and reviewing the proceedings the trial court found the master's finding No. 7 to be clearly erroneous and found generally for the plaintiff. The court found that 
The trial court ended with 48 findings of fact and wrote an extensive opinion. The issues before us do not require an extension of this opinion by an inclusion of the findings and opinion of the court below. His general conclusions may be gathered from excerpts from his opinion. We quote:
..............
..............
The trial court rendered judgment generally for the plaintiff and against the defendant. That part of the judgment affecting the nature of the relief will be discussed later.
The defendant has appealed. We will for clarity continue to refer to the parties as plaintiff and defendant.
Defendant first contends:
The defendant suggests that "the proof that the finding of a master is `clearly erroneous' should be no less than the `clear and convincing' proof required to sustain an allegation of fraud."
We would not understress the obligation of a trial court to accept the findings of a master unless it finds them clearly erroneous. However, where the district court in reviewing the master's findings after a consideration of the record is left with the definite and firm conviction that a mistake has been committed, the findings may be set aside as clearly erroneous.
The general rule as announced in the federal cases construing a statute similar to that from which the Kansas statute is taken, reads:
We would also suggest, in answer to defendant's complaint that the court had not read all of the testimony and all of the exhibits, it does appear to have read all of the evidence material to the issues before it. In United States v. Certain Lands in City of Statesboro, Etc., 341 F.2d 742, 744, it is said:
However, we do not believe that the propriety of the conclusion that finding No. 7 was clearly erroneous turns on the evidence but that it results largely as a matter of law. From the beginning of the action the defendant contended that before the plaintiff could recover he must prove that the agreement to remain equal in the patent and its resulting benefits must be "always or forever." The plaintiff only contended that such an agreement existed for all times pertinent hereto  the latter part of 1963, and the early part of 1964, when the stock was purchased by the defendant.
The defendant was the only witness who testified positively on his own behalf. His testimony reads:
The following colloquy discloses the position of the parties:
The plaintiff has consistently contended that the agreement was to continue only for the duration of the business under the patent, or until cancelled by mutual consent or by one of the parties in writing but that it was in existence at the time the stock in controversy was purchased by defendant.
When the master found 
he overreached the material issue of time, and there were no supporting findings to justify any conclusion as to the agreement at the time pertinent to the controversy.
*189 The trial court properly proceeded to make its own findings on the issues as to the time the agreement existed; the effect of the articles of incorporation on stock purchases, and the breach of confidential relationship. The master's conclusory finding No. 7, without supporting findings, was insufficient to suggest the master's reasoning in reaching his conclusion. The court was left without a basis for testing the propriety of the master's conclusion except to review the record and make its controlling findings. In United States v. Merz, 376 U.S. 192, 84 S. Ct. 639, 11 L. Ed. 2d 629, 634, it is stated:
The defendant also contends:
This procedural controversy arose out of a statement of the master in the letter transmiting his report. The statement reads:
The statement appears to be argumentative and of little weight as the original joint adventure or partnership agreement was not in writing. However, the trial court faced with the lack of supporting findings was no doubt justified in considering any pertinent evidence. Mr. Grimes had been attorney for the brothers during the partnership and the forming of the corporation, and the master had raised an issue which had not been covered by the evidence.
We are forced to conclude that the trial court had ample authority *190 under the provisions of K.S.A. 60-253 (e) (2) to receive the new evidence. The statute reads in part:
There is another matter that requires attention. Although the court held generally for the plaintiff and against the defendant the relief decreed was for the benefit of all stockholders. The defendant was directed to offer through the secretary of the corporation the 150 shares of stock which he had purchased subsequent to December 5, 1963, to all stockholders existing at the time of each purchase in order that they have a chance to purchase the stock in accordance with the articles and by-laws of the corporation.
We are forced to disagree with the court's interpretation of the corporation's articles and by-laws. A method of controlling the sale of stock was provided in the original articles of incorporation and by-laws. The original by-laws (Article IX, Section 3) read:
The above quoted provision clearly applied to the sale of stock to any person including another stockholder. Some of the prospective purchasers of stock objected to the provision, particularly that part which required the sale to stockholders at book value. On February 8, 1961, the provision was amended to read as follows:
We are forced to conclude from the clear and unambiguous language of the amended provision that it covered only stock sold to a non-stockholder and not sales by one stockholder to another. Any other construction would completely nullify the first sentence of the amended provision. The purchase of stock made by the defendant was not subject to the amended provision, contrary to the conclusion of the trial court.
There is ample evidence to support the trial court's finding that at the time pertinent hereto the plaintiff and defendant had an agreement that they would share equally in the fruits of the patent which was represented by the stock in the corporation. We approve the court's judgment which was generally for the plaintiff and against the defendant. However, as there was no restriction by the articles of incorporation or the by-laws on the sale of the stock to the defendant we are forced to conclude that the only relief to be granted should be in favor of the plaintiff and not the general stockholders.
The plaintiff should be decreed to be the owner of one-half of the shares of stock in the Hydro-Flex Corporation, Inc., purchased by the defendant, Ralph L. Campbell, subsequent to December 5, 1963, together with the voting rights and all other rights and benefits appurtenant thereto. The plaintiff's title should be absolute subject only to the payment of one-half the purchase price and one-half the accrued interest which is to be applied on the note and mortgage held by the Fidelity State Bank.
The judgment of the trial court is affirmed in part and reversed in part, and remanded with instructions to reinstate the action and enter judgment in plaintiff's favor in accordance with the views herein expressed.
APPROVED BY THE COURT.