Title: Remillong v. Schneider
Citation: 185 N.W.2d 493
Docket Number: 8668
State: north-dakota
Issuer: north-dakota Supreme Court
Date: March 30, 1971

185 N.W.2d 493 (1971) George REMILLONG, individually and on behalf of Missouri Valley Meat Company, a North Dakota corporation, Plaintiff and Appellant, v. John SCHNEIDER and Caroline Schneider, Defendants and Respondents. Civ. No. 8668. Supreme Court of North Dakota. March 30, 1971. *495 Conmy, Conmy, Rosenberg &amp; Lucas, Bismarck, for plaintiff and appellant. C. J. Schauss, Mandan, for defendants and respondents. PAULSON, Judge. This is an appeal by George Remillong, individually and on behalf of Missouri Valley Meat Company, a North Dakota corporation, from a judgment of dismissal entered against George Remillong and the Missouri Valley Meat Company on January 29, 1970. In June of 1952, the Missouri Valley Meat Company was incorporated and organized under the laws of the State of North Dakota. The original incorporators were George Remillong, George Schuch, and John P. Schneider. Initially, each of the shareholders was issued 100 shares of stock. Thereafter, in December of 1952, 50 shares of stock were issued to Harry Semerad; and, in February of 1953, another 50 shares of stock were issued to Mr. Semerad. In May of 1957, George Schuch sold his interest in the corporation, the stock being divided equally between George Remillong, John P. Schneider, and Harry Semerad. At that time, stock certificates representing 100 shares each were issued by the corporation to George Remillong and Matilda Remillong, John P. Schneider and Caroline E. Schneider, and Harry Semerad. On December 1, 1966, Harry Semerad sold and transferred his interest in the Missouri Valley Meat Company by assignment of his shares to John P. Schneider and Caroline E. Schneider. At various times prior to 1966, retained earnings of the corporation were distributed to Harry Semerad, John P. Schneider, and George Remillong, based upon the number of shares of stock held by each. Thereafter the retained earnings were distributed on the basis of one-third of the earnings of the corporation to George Remillong and two-thirds of the earnings to John Schneider. The bylaws of the Missouri Valley Meat Company since the time of its incorporation have contained the following Article: At all times relevant to this lawsuit, John Schneider, as secretary-treasurer and as the general manager of the Missouri Valley Meat Company, was principally responsible for the management of the corporation; George Remillong was president; and Harry Semerad was vice president prior to the sale of his stock to John Schneider. Notwithstanding the fact that as president of the Missouri Valley Meat Company Mr. Remillong had access to all corporate records, he asserts that at the time of the trial, January 23, 1970, he had no knowledge concerning the corporate books, receipts, and records which were maintained by Mr. Schneider, and Mr. Remillong stated that he believes that some of the company's records may have been lost in a robbery in 1956. Mr. Remillong also asserted that no meetings of the corporation were held, either on a formal or an informal basis. He further stated that he did not know that Mr. Semerad had sold his stock to Mr. Schneider until the fall of 1969, and that Mr. Schneider never notified him of Schneider's claim to ownership of two-thirds of the company's stock. Mr. Remillong further indicated that it was not until the fall of 1969 that he first acquired knowledge of the Semerad stock sale to Schneider. Mr. Remillong also testified that he did not examine any of the company's books because he had relied upon Mr. Schneider to maintain the books and records properly; and he also stated that he was not aware that Mr. Schneider was drawing two-thirds of the corporation's retained earnings until a partial audit made late in 1969 revealed the changed allocation of the retained earnings of the corporation. Mr. Remillong then instituted an action in which he asserted that John Schneider was holding the Semerad stock interest in trust for the Missouri Valley Meat Company, and he asked that Mr. Schneider be required to convey the Semerad stock in the corporation at a price equal to the book value of the stock at the date of Schneider's acquisition of such stock. Mr. Remillong further asked that the corporation be credited as an offset toward the purchase price with the excess distribution moneys which had been removed from the business by Mr. Schneider through December 31, 1968, in the sum of $7,640.84, and for all such sums withdrawn since that time in a disproportionate amount to the moneys drawn by George Remillong. The issues of this case are: The relevant North Dakota statutes are: The first issue to be discussed is whether the transfer of stock from Semerad to Schneider was in violation of Article VII of the bylaws of the Missouri Valley Meat Company. The general rule stated in 18 Am.Jur.2d, Corporations § 388, page 898, is as follows: Nevertheless, it is quite apparent that a bylaw of a closed corporation restricting the transfer of stock is important to protect the corporation and its stockholders from its competitors and from other undesirable outside influence. 8 Fletcher Cyc. Corp. (Perm.Ed. 1966 rev. vol.) § 4205. This rule has been followed in the Oklahoma decisions of: Schonwald v. Cassell, 475 P.2d *498 612 (Okl.1970); Dobry v. Dobry, 262 P.2d 691 (Okl.1953); Guaranty Laundry Co. v. Pulliam, 198 Okl. 667, 181 P.2d 1007, 2 A.L.R.2d 738 (1947). In paragraphs 2 and 3 of the syllabus in Guaranty Laundry Co. v. Pulliam, supra, the Oklahoma Supreme Court held: After perusing Article VII of the bylaws of the Missouri Valley Meat Company, it is apparent that the sole purpose of Article VII is to protect the corporation and its shareholders from outside influence unless the corporation and the stockholders so approve. It does not appear that the purpose of Article VII of the bylaws was to prohibit an unequal division of stock ownership by the sale of stock by one stockholder to another. To hold that Article VII specifically prohibited the sale of stock by one stockholder to another without approval by the corporation and other stockholders would be contrary to the general rule of law expressed above. Thus we hold the transfer of stock from Mr. Semerad to Mr. Schneider to be valid. If, for the sake of argument, we had held that Article VII did apply to the transfer of shares of stock from one stockholder to another, the result would have been the same in the case at bar. In referring to informal meetings by corporate directors, in 19 Am.Jur.2d, Corporations § 1121, page 557, it is stated: And, in 19 Am.Jur.2d, Corporations § 1122, page 558, it is stated: Missouri Valley Meat Company is an example of a closed corporation in which the directors and the stockholders are one and the same and have been conducting business for a number of years on an informal basis, not recording the minutes of their meetings. In 2 Fletcher Cyc. Corp. (Perm.Ed. 1969 rev. vol.) § 394.1, at page 238, it is stated: Pursuant to § 31-10-02(41), N.D.C.C., we take judicial notice of the annual reports for domestic corporations filed with the Secretary of State's office for the State of North Dakota for the Missouri Valley Meat Company for the years 1965 and 1966. Columbia Stamping &amp; Mfg. Co. v. Reich, 28 Wis.2d 297, 137 N.W.2d 45 (1965). The annual report for 1965 reveals that the directors and officers of the Missouri Valley Meat Company were: George J. Remillong, director and the president; Harry Semerad, director and the vice president; and John P. Schneider, director and the secretary-treasurer. The annual report for 1966 reveals that George J. Remillong was a director and the president; John P. Schneider was a director and the secretary-treasurer; and Harry Semerad's name did not appear in the 1966 annual report, either as a director or as an officer of the corporation. This is due to the fact that Mr. Semerad had sold his stock to John Schneider prior to the date that the 1966 report was filed. Thus, Mr. Remillong had at least constructive notice of the stock transfer from Mr. Semerad to Mr. Schneider. The deposition of Harry Semerad, dated December 11, 1969, and identified as Plaintiff's Exhibit 2, was admitted into evidence by the trial court pursuant to stipulation by both of the parties. In his deposition, Mr. Semerad testified that on more than one occasion, in the presence of George Remillong and John Schneider and himself, at the official place of business of the Missouri Valley Meat Company, Mr. Semerad offered to sell his interest in the Missouri Valley Meat Company to the corporation or, in the alternative, to the other two stockholders. Mr. Semerad testified that George Remillong did not wish to purchase Mr. Semerad's stock. Mr. Semerad also testified, of his own personal knowledge, that the Missouri Valley Meat Company did not have adequate assets with which to purchase his interest in the corporation during the period of time when Semerad was negotiating for the sale of his stock. Plaintiff's Exhibit 3, admitted into evidence by the trial court, is a retained earnings analysis of the Missouri Valley Meat Company which indicates that, at the time of the Semerad stock transfer, the Missouri Valley Meat Company did not have adequate assets to purchase Mr. Semerad's stock and, in fact, that a loss was reported for the year of 1965; and the reported earnings for the year of 1966 were in an amount far less than required to purchase Mr. Semerad's stock. Furthermore, had the Missouri Valley Meat Company purchased the Semerad shares when the corporation lacked sufficient capital, such action would have been in violation of § 10-19-05 (1), N.D.C.C. Mr. Remillong was present at those company meetings wherein Mr. Semerad discussed his desire to dispose of his stock, and at such times Mr. Remillong voiced no objection to the fact that these meetings were called informally; and thus, pursuant to § 10-19-43, N.D.C.C., Mr. Remillong's attendance at such meetings constituted a waiver of notice of such meetings. A similarly informal meeting was held to be a valid board meeting in Columbia Stamping &amp; Mfg. Co. v. Reich, supra. Thus we hold, for the purpose of argument, that had the restrictions in Article VII of the bylaws of the Missouri Valley Meat Company applied to the Semerad stock transfer, Mr. Semerad in effect complied with the requirements of *500 Article VII of the bylaws of the corporation. Sections 59-01-05, 59-01-06, and 59-01-08, N.D.C.C., do not apply in the case at bar because the Semerad stock transfer was valid and therefore no trust is in existence in favor either of Mr. Remillong or of the Missouri Valley Meat Company. We further find that there is nothing in Article VII of the bylaws of the Missouri Valley Meat Company which would prohibit a disproportionate share-holding by any one of its stockholders. We hold that the distribution of the corporation's retained earnings was made in proportion to the stock ownership of each stockholder and that there was a proper distribution of such earnings. For the reasons stated in the opinion, the decision of the district court is affirmed. STRUTZ, C. J., and ERICKSTAD, TEIGEN and KNUDSON, JJ., concur.