No. 13551
IN THE SUPREME COURT OF THE STATE OF MONTANA
KENECO, a corporation and
RAYMOND KENICK and BETTY KENIK,
Plaintiffs and Respondents,
CLYDE CANTRELL and HELEN CANTRELL,
Defendants and Appellants.
Appeal from: District Court of the Eighth Judicial District,
Honorable Paul Hatfield, Judge presiding
Counsel of Record:
For Appellants:
Jardine, Stephenson, Blewett & Weaver, Great Falls,
Montana
Dale Schwanke argued, Great Falls, Montana
For Respondents:
Cure and Borer, Great Falls, Montana
Orin R. Cure argued, Great Falls, Montana
Submitted: June 6, 1977
Decided: SEP 1 6 1n
9
Filed:
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Clerk'
Honorable W. W. Lessley, District Judge, sitting in place of Mr.
Chief Justice Paul G. Hatfield.
This litigation arises from a conflict of brothers-in-law
in the creation and operation of a family corporation.
Keneco is the family corporation; it sells, installs,
and repairs service station equipment. From 1965 to 1970 the
only directors and stockholders were Kenik, his wife Elizabeth,
and Cantrell and his wife Helen; Helen Cantrell is Raymond Kenik's
sister. The wives did not actually participate in the corpora-
tion's business.
In 1962 Kenik purchased Marketing Specialties and operated
it selling, installing and repairing service station equipment.
From 1962 to 1964 Kenik and Cantrell talked of Cantrell becoming
an owner with Kenik of the Marketing Specialties business. Before
this Cantrell had lived in Great Falls and served as a comptroller
in a large department store; he had left that position, purchased
and ran a sporting goods store.
Finally, Cantrell sold his sporting goods store and joined
Kenik in his business. Cantrell was to, and did run the bookkeep-
ing and all business phases of the corporation. Kenik did actually
manage and labor in the day to day operation of the business.
Articles of Incorporation were filed May 12, 1964 and
Kenik's small business became Keneco, a corporation on that day.
The corporation operated with ~ e n i kas president and Cantrell as
vice-president until May 1970, when Cantrell left the corporation.
August 31, 1970, Cantrell filed suit to liquidate Keneco
because of a claimed management deadlock. September, 1970, Kenik
on behalf of Keneco and himself filed suit against Cantrell for
damage alleging fraud and malfeasance by Cantrell. The district
court consolidated the two actions for trial.
The court referred the matter to a certified public
accountant as referee. The referee's findings of fact and conclusions
with amendments are 88 in number and cover 27 legal pages.
The district court adopted the referee's findings of
fact and conclusions of law and made the following conclusions:
(1) That Raymond Kenik is not indebted to Keneco;
( 2 ) That Raymond Renik is the owner of 19,825 shares of
stock of Keneco and Clyde Cantrell is the owner of 12,675 shares
of stock of Keneco and that the total is 32,500 shares which is
the total number of shares of Keneco stock issued;
(3) That Keneco is indebted to Clyde Cantrell in the sum
of $7,432.25 and Clyde Cantrell is indebted to Keneco in the
amount of $7,948.28, and that the interest on both of said amounts
would approximately offset each other and said total amounts shall
be paid without interest;
(4) That Raymond Kenik is the owner of 19,825 shares of
stock of Keneco and Clyde Cantrell is the owner of 12,675 shares
of stock of Keneco and all stock in excess thereof issued to
either Raymond Kenik or Clyde Cantrell shall be cancelled and all
stock in excess of such amount shall be by the holder surrendered
to Keneco for cancellation;
(5) That Keneco shall pay to Clyde Cantrell the sum of
$7,432.25 without interest;
(6) That Clyde Cantrell shall pay to Keneco the sum of
$7,948.28 without interest;
(7) That each of the parties hereto shall pay their own
costs and attorney's fees;
(8) That Keneco shall pay the costs and expenses of Mack
J. Hamilton, referee, with the provision that the same would be
apportioned and charged to the parties as determined by the Court;
(9) That the costs and expenses of Mack J. Hamilton,
referee, are allowed and approved in the amount of $3,980, which
amount has been paid to him by Keneco,and Raymond ~ e n i kshall pay
to Keneco one-half thereof and Clyde Cantrell shall pay to
Keneco one-half thereof.
Appellant appeals from both the findings and conclu-
sions and judgment and the cross-appellant appeals only from the
conclusions.
The task of the referee and the district court was to
determine an equitable and fair redistribution of the issued
stock in Keneco in proportion to the correct total owner's equity
or ownership of both Kenik and Cantrell. Before the referee or
district court could redistribute the stoclcthey had first to
determine Kenik's and Cantrell's correct ownership of that stock.
In this determination the referee and the district court
were really involved in an accounting of the operations of this
small corporation and the valid, many, and conflicting claims of
Kenik and Cantrell. The referee and the lower court approached
the factual problem in a two-step process. They first determined
what Kenik's and Cantrell's equity or ownership were as of
January 1, 1975. Second, they determined for both Kenik and
Cantrell which of the ten stock issuances which took place in
issue from November 1, 1965, until February 28, 1969, were valid
stock issuances in that they were stock issuances supported by
adequate consideration for the issuances of that stock. Kenik's
1965 equity or ownership in Marketing Specialties was then added
to the value of the issued stock validly issued to him to deter-
mine Kenikts total equity or ownership. A small addition of the
1965 equity or ownership plus the value of the validly issued
stock was made on behalf of Cantrell to determine the ownership
or equity.
To determine the owners' equities as of January 1, 1965,
the referee first calculated the assets transferred to Keneco as
of January 1, 1965. He then calculated the liabilities assumed
by Keneco as of the same date. By subtracting the liabilities
from the assets ($44,626.00 - $33,191.31) the total owners' equi-
ties as of January 1, 1965 were determined to be $11,434.69.
By determining Cantrell's January 1, 1965 equity to have been
$1,040 and by subtracting the $1,040 from the 1965 total owners'
equity of $11,434.69, the referee was able to determine Kenik's
equity to have been $10,394.69, as of January 1, 1965.
The second step in determining total owners' equities
was to determine which of the ten stock issuances were valid
stock issuances supported by adequate consideration. The referee
determined that $1,200 worth of shares (1,200 shares at $1 per
value per share) had been validly issued to Kenik. This $1,200
combined with his 1965 equity of $10,394.69 gave Kenik a total
equity of $11,594.69.
Cantrell was found to have had $6,353.06 worth of shares
validly issued to him. This $6,353.06 combined with his 1965
equity of $1,040 gave Cantrell a total equity of $7,393.06.
In conclusion 111 the referee reapportioned the 32,500
shares in the same proportions as the total equities determined
in conclusion 11. As a result of the reapportionment, Kenik
was awarded 61 percent or 19,825 of the total 32,500 shares of
stock; Cantrell was awarded the remaining 39 percent or 12,675
shares.
In substance the district court adopted all of the
referee's findings and amendments to his findings.
Two peripheral questions of law are argued by the appel-
lants. We look at them before considering the basic issue pre-
sented us on this appeal. First, they argue Kenik's acceptance
and retention of the stock issuances was ratification. Second,
they contend Kenik's claim of fraud (if proven) is barred by the
two year statute of limitations, section 93-2607(4), R.C.M. 1947.
We disagree and find no merit in those positions.
Cantrell argues that because Kenik signed, accepted
and retained the stock issuances that this amounted to ratifi-
cation by acceptance of the benefits (i.e., the stock issuances).
It is true as contended by Cantrell that " * * * Nonassenting
stockholders also may be estopped by acts recognizing and amount-
ing to an acquiescence in, or ratification of, the irregular
issue * * *." 18 Am Jur 2d, Corporations 5 251, p. 774. See
also 19 C.J.S. Corporations § 1016 et seq.; State ex rel. Howeth
v. D. A. Davidson & Co., 163 Mont. 355, 517 P.2d 722; American
B. & T. Co. v. Farmers' E. & M. Co., 63 Mont. 612, 208 P. 594.
Ratification, however, is valid only if all of the material facts
are known.
"The general rule as to ratification by accep-
tance of benefits, of course, applies only where
the corporation through its proper officers has
knowledge of the facts, and not where it receives
and retains the benefits of the unauthorized act
or contract in ignorance of the facts, and re-
pudiates the act or contract when it acquires
knowledge thereof * * *." 19 C.J.S. Corporations
5 1020, p. 503.
Similarly, the Montana Supreme Court has held that "Knowledge
is an essential element of 'ratification by acceptance of benefits.'"
Alward v. Broadway Gold Min. Co., 94 Mont. 45, 20 P.2d 647, 650,
citing Stanton v. Occidental Life Ins. Co., 81 Mont. 44, 261 P.
620. Kenik had no knowledge that Cantrell was not going to adjust
the shares issued to Kenik, as Cantrell said he would; Kenik did
not ratify the issuances by signing, accepting and retaining them.
Cantrell is estopped from the use of the statute of
limitations. Estoppel is used to promote justice, honesty, fair
dealing and to prevent injustice. Morris v. Langhausen, 155 Mont.
Whenever possible, courts will construe statutes of
limitations so as to prevent hardship. State ex rel. Steinfort v.
District Court, 111 Mont. 216, 107 P.2d 890.
This Court believes that Kenik has established the six
essential elements of estoppel including: (1) There must be
conduct--acts, language, or silence--amounting to a representa-
tion or a concealment of material facts. (2) These facts must
be known to the party estopped at the time of his said conduct,
or at least the circumstances must be such that knowledge of
them is necessarily imputed to him. (3) The truth concerning
these facts must be unknown to the other party claiming the
benefit of the estoppel, at the time when it was acted upon by
him. ( 4 ) The conduct must be done with the intention, or at least
with the expectation, that it will be acted upon by the other
party, or under such circumstances that it is both natural. and
probable that it will be so acted upon.
This is clearly the case here. Cantrell arranged ten
stock issuances between November 1, 1965 and February 28, 1969.
The record indicates that Kenik believed he was not getting his
fair share of the issued stock. When he complained about the
stock issuances, Cantrell told him that he, Cantrell, was honest
and that he was going to make it right; that Cantrell knew what
he was doing and it would be taken care of; and that this was a
matter of bookkeeping and that things would get straightened out.
As a result, Kenik was lulled into a sense of security that
"everything would get straightened out." Consequently, his posi-
tion was changed for the worse. Had he not been lulled into a
sense of security, he could have prevented the wrongful issuance
of stock to Cantrell. He also could have brought his action much
sooner and not have been faced with a statute of limitations
problem.
The briefs and positions of appellant and cross-appellant
present to us the basic question of whether there was suffi-
cient evidence to support the district court's findings, conclusions
of law and judgment.
This case is primarily a question of fact. Our duty on
this appeal is to review the findings of fact and conclusions
of law.
This we have done from the findings of the referee adopted
by the Court, from the findings of the district court, and from
the transcript that included direct and cross-examination of the
referee as to his findings.
We determined that the findings and conclusions of law
and judgment are supported and justified by evidence. Johnson
v. Jarrett, 169 Mont. 408, 548 P.2d 144, 33 St. Rep. 320.
In short, there was evidence presented to the referee
and to the district court that was in conflict, but that evidence
was substantial and credible. That evidence supports the court's
findings and judgment.
were
The referee's findings/adopted by the district court,
the district court's findings and judgment are sufficiently sup-
ported by evidence before the referee and district court.
Further the direct and cross-examination of the referee
as to the basis and reason for his findings and conclusions of
fact are before this Court in the transcript of the cause.
Our Court, as recently as Kearns V. McIntyre Construction
Co., Mont. -' -P.2d , 34 St.Rep. 703 (July 19771, and
cases cited there, restated the rule that we need only determine
whether there is substantial evidence to support the findings and
we will notreverse such findings unless there is a clear prepon-
derance of evidence against the findings. See Cope v. Cope, 158
Mont. 388, 493 P.2d 336; Smith v. Krutar, 153 Mont. 325, 457 P.2d
459, and Spencer v. Robertson, 151 Mont. 501, 445 P.2d 48; Crncevich
v. Georgetown Recreation Corporation, 168 Mont. 113, 541 P.2d 56.
Most if not all of the testimony is Kenik's statements
against the statements of Cantrell and the documentation con-
cerned. Clearly, this evidence is conflicting. See McGuire v.
American Honda Company, Mont . , 566 P.2d 1124, 34 St.Rep.
632. Just as clearly there is not a preponderance of evidence
against the court's findings and judgment.
The judgment is affirmed.
/
Paul G. Hatfield.
We concur:
- Justices C/