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Baker v. Commercial Body Builders Inc.

March 1, 1973

BAKER ET UX, APPELLANTS,
v.
COMMERCIAL BODY BUILDERS, INC. ET AL, RESPONDENTS



Appeal from Circuit Court, Multnomah County. J. J. Murchison, Judge.

Richard H. Muller, Portland, argued the cause for appellants. With him on the briefs were Bouneff, Muller, Marshall & Hawkes, Portland.

Allen L. Fallgren, Portland, argued the cause and filed the brief for respondents.

Tongue, Justice. O'Connell, Chief Justice, and McAllister, Denecke, Howell and Bryson, Justices.

Tongue

This is a suit under ORS 57.595 by the owners of 49% of the stock in a "close corporation" to compel a dissolution of the corporation for alleged "illegal, oppressive and fraudulent" conduct by defendants Siler as directors of the corporation and for "misapplication and waste" of its assets.*fn1

Plaintiffs appeal from a decree dismissing their

complaint, based on findings by the trial court that "[p]laintiffs have not established by the required quantum of evidence, that any acts of the defendants Siler, as directors, have been or now are illegal, oppressive or fraudulent" or "any showing of circumstances which would justify the equitable relief prayed for." We affirm.

On trial, according to the record of proceedings in the trial court, the case was submitted for decision upon the issue of whether or not the corporation should be liquidated or whether, as an alternative, plaintiffs were entitled to entry of a judgment in the amount of $36,504.07, representing the book value of their stock so as to require, in effect, the purchase of their stock by defendants at that price. On this appeal, however, plaintiffs contend that either "the remedies called for in ORS 57.595 and ORS 57.600 should be decreed by this Court or the case should be returned to the court below for the fashioning of an appropriate remedy under its equitable powers to restore the status quo or require the Silers to do equity."*fn2

It thus becomes necessary to review the evidence.

Because of the manner in which the case was tried and the somewhat vague nature of some of the testimony it is difficult to reconstruct the facts, particularly in a chronological order.

1. Summary of evidence.

a. Organization of corporation. Subsequent purchase of stock by Baker. Original agreement between parties.

Defendant Commercial Body Builders, Inc., ("Commercial") was originally organized in August 1966 by defendants Charles Siler and his wife as a family corporation. Its purpose was to engage in the construction of truck bodies, lift gates, and related truck equipment -- a business with which Siler was thoroughly familiar and experienced.

About a year later, in 1967, at the suggestion of defendant Siler, plaintiff Baker invested $14,210 in the corporation. Baker was not familiar with the business, but was engaged in the insurance and real estate business. At that time an additional 100 shares of stock were issued and Baker and his wife became owners of 98 shares of the corporation's stock, while Siler and his wife retained ownership of 102 shares.*fn3 Baker also signed a promissory note for $5,000, payable to Siler, with no time specified for payment, but with payment to be made from the "proceeds" of

future bonuses to be paid to employees, including Baker.*fn4

At the same time, Siler was elected president and his wife treasurer of the corporation, while Baker was elected vice-president and his wife secretary. Monthly salaries were also established, including a salary of $800 to Siler, $200 to his wife, and $100 to Baker. Siler, however, spent full time in the business and his wife worked approximately six hours each business day as bookkeeper, while it was agreed that Baker would spend one day each week at the office. At that time, however, he apparently devoted at least part of that day to the transaction of his insurance and real estate business. As stated by Baker, there was no "formal understanding" what he was to do for Commercial, but the monthly salary of $100 was used by him to pay off the mortgage loan by which he raised the money to purchase the stock.

Shortly afterwards, a "buy-sell" agreement was prepared by Baker's attorney and was signed by the parties. By its terms, if either party desired to sell his stock he was required to first offer it to the other party "at the same price as offered on the market or at the book value of said shares as computed by the accounting methods regularly recognized for the computation of book value of corporate stock, whichever is less."

b. Two profitable years of operation. Increase in salaries and bonuses.

At the end of the following fiscal year on June 30,

1968, the corporation showed a profit of $9,743.90. At that time the following bonuses were paid: Siler, $1,750; Baker, $1,000, and Mrs. Siler, $500. As of the same date salaries were increased as follows: Siler to $1,000 per month, his wife to $350 per month, and Baker to $250 per month.

Similarly, at the end of the next fiscal year on June 30, 1969, the corporation showed a further profit of $19,712.16. According to Siler, however, as of that date Baker, although "doing a satisfactory job," was not making any contacts or sales. Nevertheless, the following additional bonuses were then paid: Siler, $2,625; Baker, $1,500, and Mrs. Siler, $750. On October 6, 1969, Siler's salary was also increased to $1,500, as of July 1, 1969, with no corresponding increase to Baker or to Mrs. Siler. To provide for future expansion, the corporation also loaned $1,370.58 each to Siler and to Baker to provide funds for use as a down payment for the purchase of adjacent property. That property was then apparently purchased by them as partners, under the name of Dorpat Investment Co., and was leased to the corporation.

c. Termination of Baker and negotiations for purchase of his stock.

During the fiscal year 1969-1970, according to Siler, business was "terrible" and although sales increased by $50,000, labor costs increased even more. During that same year, as a result of the organization of Dorpat and the leasing of larger quarters from it, payments for rent, insurance, taxes, "moving in" expenses, and other items were increased. The profit for the fiscal year ending June 30, 1970, dropped to $269.52.

Also, according to both Siler and Baker, the relationship between them deteriorated in early 1970. Siler testified that Baker made only one small sale while he was with the company and that he was not "getting out and calling on the trade" or spending as much time as he should for the company.*fn5 Baker testified, however, that Siler told him not to contact large companies, such as the telephone company, because any resulting orders would be too large for the small business to handle and that relations deteriorated because Siler wanted him to sell out and because Siler thought that a Mr. Ahern could do more for the business than Baker could.

In early May 1970, Mr. Ahern tried to talk to Baker about purchasing his stock, but Baker refused to talk to him about a price for the sale of his stock. According to Baker, he was then offered $20,000 for his stock by Siler, who "intimated" that if Baker didn't sell he would get no profits from the business.

Siler denied that statement and denied making an offer to Baker for his stock, but said that Ahern also wanted to buy Siler's stock and had offered to pay $45,000 for it, because 51% was worth much more than 49%, and that Siler told Baker that if he sold out the purchaser might operate the business in such a way that it would show no profits. Siler also testified that he told Baker, apparently on another occasion, that Ahern would pay Baker $22,500 for his stock; that he talked to Baker about that offer; that Baker said he

didn't know what to do, and that he told Baker that if Baker didn't sell to Ahern, Siler was going to do so. In addition, Siler testified that he tried to get Baker to buy him out, but that Baker would not do so and would not tell Ahern whether or not he would sell out to him.

On June 25, 1970, after these negotiations failed, Baker was terminated as a salesman "because of unsatisfactory work performance." According to Siler, this was done because Baker had made no sales and because Siler decided that Baker "was not doing the company any good." On July 10, 1970, Baker and his wife were "voted out" as directors and officers. After that date no notices were sent to Baker of any further stockholders' meetings and he was not consulted by Siler thereafter about the business. Baker also testified that he was also not permitted to see the company books and that he had to get "legal redress" in order to do so. This was denied by Siler.

Also, at the meeting on July 10, 1970, Siler's salary was increased to $1,800 per month and his wife's salary was increased to $500. There were no subsequent salary increases and no bonuses were paid to Siler or to his wife, however, either ...


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