Court Opinion

ID: 9468499
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:16:30.328958+00
Date Added: 2024-06-11T17:40:53.763985
License: Public Domain

CUDAHY, Circuit Judge,
concurring, with whom CUMMINGS, Chief Judge, joins:
The “crucial language” of the Stock Agreement is set forth in Judge Kunzig’s opinion, supra at 1141. This language, which is part of Article III of Chrysler’s standard Stock Agreement, provided for recapitalization of the Corporation after its first twelve months of operation. According to the testimony of George Moore, a former area manager for Chrysler’s Marketing Investment Division,1 Article III was added to the Stock Agreement in 1965 to provide protection for the many dealer enterprise dealerships that lost money in their first year of operation. This protection apparently played an important role in dealer enterprise arrangements, because, according to the testimony of Edward Bond, head of MID during Kolb’s tenure, Chrysler operated on the assumption that new dealerships would “function at a loss for a period of time due to the fact that you probably had not been represented in the market or you may have had poor representation.... And in a new market it might take some time to arrive at the potential of the market due to the missionary work. Due to the missionary work you would have to do, it wasn’t always possible to become profitable in the first one, two or perhaps three years.”2 Kolb testified that he was informed of the recapitalization feature of Article III by Garmon Woker, Area Manager of Chrysler’s Sales Division, and that he relied on it “very, very strongly” in deciding whether to establish a dealer enterprise dealership.3
Under the terms of Article III, Chrysler was required to (1) conduct an audit to *1142determine whether and to what extent the Corporation had sustained a net operating loss during the first twelve .months of operation, (2) determine, together with Kolb, if additional capital was required “to maintain the capital of the Corporation at a satisfactory level; and, if so, the amount of additional capital that shall be required,” and (3) “contribute to the capital of the Corporation in cash, a proportionate share of such additional capital.”
The district court determined that Chrysler’s breach of its obligation to perform an audit was not material since an audit had been made after the first 10 months of operation and since “it was clear, audit or no audit, that the business was losing money.”
Even if this analysis is accepted, it is clear that Chrysler breached its second obligation of determining, together with Kolb, “if additional capital is required to maintain the capital of the Corporation at a satisfactory level.” Kolb testified that when, in late February 1970, he spoke with Frank Moran, Chicago Branch Manager of MID, about the 12-month audit required by Article III, Moran told him that he had not made arrangements for the audit and that he felt as though Chrysler would not have money available to recapitalize the dealership. And, when Kolb raised the possibility of recapitalizing the dealership in other conversations with Moran, Moran repeatedly told him that Chrysler had no money to put into the dealership and that he should not raise the issue again.4 Thus, Chrysler clearly breached its obligation of determining, in good faith,5 whether additional contributions were necessary to maintain the Corporation’s capital at a satisfactory level.6
Judge Kunzig, infra at 1143, would excuse Chrysler’s failure to calculate and provide the amount of money needed to satisfactorily recapitalize the Corporation by stating that “Chrysler’s omission to contribute additional capital cannot be deemed a breach because it never came under any absolute duty to do so.” In his view, Chrys*1143ler’s obligation to provide additional capital was wholly conditional upon “a joint determination to recapitalize,” and since this joint determination never occurred, Chrysler’s obligation “never became absolute.”
These statements contradict the language of Article III and frustrate its purpose. Chrysler’s obligation under Article III was not merely to consider recapitalization, but to determine, together with Kolb, if additional capital was required to “maintain the capital at a satisfactory level” and then to “contribute in cash a proportionate share of such additional capital.” (emphasis supplied). Nothing in Article III permitted Chrysler to decide unilaterally whether it was “desirable” to make the required contribution. Indeed, such an interpretation makes wholly illusory the protection that Article III was intended to provide to new dealerships.
Subsequent provisions of Article III make it clear that the language requiring additional capital contributions was not meant to be merely precatory. Paragraph A(2) provides, for example, that “[i]f for any reason Manager [Kolb] ceases to be President of the Corporation at any time prior to the close of the initial twelve (12) months of Manager’s operation . . . and Chrysler elects to purchase Manager’s Common Stock . . . neither Manager nor Chrysler shall be obligated to make any contribution to the capital of the Corporation. . . . ” And, Paragraph B provides that
[i]f the Corporation shall sustain net operating losses at any time after the close of the initial twelve (12) months of Manager’s operation .. Chrysler and Manager shall participate in such losses in the following manner: 1. Chrysler and Manager may voluntarily contribute to the capital of the Corporation or subscribe to additional Capital Stock in order to maintain the capital of the Corporation at a satisfactory level; however, neither party shall have any obligation to do so, and any contribution by either party shall be expressly conditioned upon the other party contributing an amount in proportion to the aggregate par value of their respective stock holdings at the time such contributions are to be made, (emphasis added).
Under the circumstances of this case, it may have been improvident of Chrysler to have obligated itself to recapitalize the Corporation at the end of the first twelve months of its operation. But it is not our function to relieve the parties of duties imprudently contracted.7 We are unable to follow the dubious rationale by which the district court transformed recapitalization from a joint to a unilateral decision. Apparently the jury was equally perplexed by the purported reasons for this contractual sleight-of-hand.
Accordingly, the district court’s grant of J.N.O.V. with regard to the contract claim is reversed and remanded with instructions to reinstate the jury verdict on this claim.

. The record indicates that Chrysler’s Dealer Enterprise division was absorbed by its Marketing Investment Division (“MID”) in 1967.

. For example, a forecast prepared by MID in 1968 estimated that the Waukesha dealership that Kolb ultimately opened would lose approximately $45,000 in its first year of operation.

. Kolb testified as follows:
[A]s Mr. Woker said, that there may be some lean months in the Waukesha market and that Chrysler Corporation has got a lot more money than you have and that by going through with the DE, in as a DE participant at 25 percent, it would only mean an expenditure of $30,000 as private capital and you say you have $60,000 plus a capital loan.
He says [sic] this way you could go in with $30,000 as an investment. Now, if in the [event] that you encounter for any reason the need for additional capital, there is this participation for, you’ll have an opportunity to revitalize the business. This would be your *1142safety valve in the event that you did encounter some lean months where recapitalization was needed. This is the safety valve where we can participate at the same proportionate rate so we can restore it to the proper level.
The agreement called for recapitalization to restore the working capital to a satisfactory level. Whether it’s in those specific words or not, but all I know is when I went into this deal that they assured me if there were going to be some lean months or if there was need for recapitalization or revitalization or recapitalization, or whatever term you want to use, 1 don’t know- if all these terms mean exactly the same or not. But I was assured if it needed more money, that they indeed would restore it to the working capital to a satisfactory level. And I relied on that. . . . I relied on that very, very strongly and that was a selling point for me to go DE.

. Kolb’s testimony reads in part as follows:
And I said [in late December 1969], ‘Mr. Moran, we have got to have more money in this business.’ And he says, ‘Kolb, forget it. There’s no money.’ I says, ‘Mr. Moran, we’ve got to have — I know that the audit is going to come up in the end of February after the first 12 months of operation. But we need it now.’ And he says, T don’t know how many times I got to tell you. There’s no money.’ So then I’d hang up. [I]n the first week of January I called Mr. Moran, and I again pleaded for an opportunity to contribute capital to this dealership, and he says, and I quote, ‘Goddam it, Kolb, how many times do I have to tell you? There’s no money. Now 1 don’t want to hear any more about it.’ I said, ‘Well, I would like maybe to call Mr. Moore. It’s this serious. I can see the handwriting on the wall. We’ve got to have money in this dealership.’ And he says, ‘You don’t call anybody but T. Frank Moran.’ And he says, 'Is that understood?’ He says, ‘If it isn’t,’ he says, ‘there will be some consequences.’

. In its brief on appeal, Chrysler recognized that “under the Dealer Acts, Chrysler is required to discharge its contractual obligations under [inter alia, the Stock Agreement] in good faith.” Of course, this duty of good faith performance would also be imposed on Chrysler under settled principles of contract interpretation. Cf. U.C.C. § 1-203 (“Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.”)

. Moran’s protestations that Chrysler did not have money available to meet its obligation of recapitalizing the dealership were baseless; immediately after Kolb was forced to resign, Chrysler provided approximately $125,000 in additional capital to the Corporation.

. In this regard, it is significant to note that the recapitalization provisions of Article III were perceived as beneficial by Chrysler. According to the testimony of Edward Bond, the recapitalization arrangement permitted Chrysler to undercapitalize dealerships initially (and thereby commit less of its investment capital), with the understanding that, if necessary, additional capital would subsequently be provided to the dealership. Several witnesses testified at trial that the dealership in this case had been initially undercapitalized. Patricia Kluck, Secretary-Treasurer of the Corporation testified, for example, that the dealership should have been initially capitalized at approximately $250,000.