Reed & Fiber Products Corp. v. Rosenthal

⁵⁰⁴ Digges, J., delivered the opinion of the Court. The present record contains three appeals from an order of the Circuit Court of Baltimore City, dated March 23rd, 1927, overruling the demurrer of the Eeed and Fibre Products Corporation and John G-. Woelfel to the bill of complaint filed by Justin J. Eosenthal, and sustaining the demurrer on behalf of Edward L. Ward, receiver of the Eeed and Fibre Products Corporation, interposed to said bill. The case being heard on demurrers to the bill of complaint, the well-pleaded allegations of the bill are to be taken as true for the purposes of this case.

The bill was filed by Eosenthal against Eeed and Fibre Products Corporation, John G. Woelfel and Edward L. Ward, receiver of the corporation, and in substance alleges: That about the 23rd day of March, 1924, Woelfel, conducting business as the Eich Eeed and Fibre Company, employed Eosenthal; that it was the intention of Woelfel at that time to form a corporation to take over the business theretofore conducted by him, and that Eosenthal should continue in the employment of said corporation. That in the month of April, 1924, Woelfel and his associates caused to be incorporated the Eeed and Fibre Products Corporation, hereinafter referred to as the corporation, to take over the business aforesaid; and negotiations ensued between Eosenthal and the corporation as to the terms of his employment. That pursuant to said negotiations, terms were agreed upon, and in the month of May, 1924, a contract was drawn up embodying the terms of said employment, which was finally signed by all the parties thereto in July, 1924. This contract is filed with the bill as an exhibit and is in the following terms: “This Agreement is made at Baltimore, Maryland, this .... day of May, 1924, between the Eeed and Fibre Products Corporation, hereinafter called ‘Company,’ first party, Justin J. Eosenthal, hereinafter called ‘Eosenthal,’ second party, and John G. Woelfel, hereinafter called ‘Woelfel,’ third party. “Woelfel has been instrumental in having incorporated Company, and in order to develop Company has employed, on behalf of Company and as officer of ⁵⁰⁵ Company, Rosenthal to act as general manager of said Company for a period of two years.

Said Rosenthal is to be paid a salary of ten thousand dollars ($10,000) per year for two years, but is to receive only seventy-five dollars ($75.00) a week of said salary in cash, the balance to be applied to the purchase of stock of Company, the intent being to have said Rosenthal become a stockholder in said Company and to pay for his stock by his services to be rendered. Nothing herein contained, however, is intended to issue stock for services to be rendered, said stock only to be issued for cash after the services have been fully rendered. “Now, therefore, in consideration of the premises and of the mutual covenants hereinafter expressed, said parties do agree as follows: “1. Company employs Rosenthal to act as general manager of said Company for a period of two years, beginning March 24, 1924, and ending on March 23, 1926. As compensation for said employment, Company agree to pay said Rosenthal the sum of Ten Thousand Dollars ($10,000) per year.

Of said sum, Rosenthal is to receive the sum of three thousand, nine hundred dollars ($3,900.00), payable in weekly installments of seventy-five dollars ($75.00) each, during the first year of said contract, and the same sum during the second year of said contract. In addition to said sum of $75.00 a week, said Rosenthal is to be credited upon the books of said Company with the sum of one hundred and seventeen dollars and thirty cents ($117.30) per week, but said Rosenthal shall not be entitled to the receipt of said sum until he shall have performed the services hereinafter set forth for the period of one year. At the termination of each year of the term of this contract, said Rosenthal shall receive the sum of six thousand one hundred dollars ($6,100.00). “2. Said Rosenthal shall act as general manager of Company for said period of two years and shall devote himself exclusively to the business of said Company.

The duties to be performed by Rosenthal are those which usually appertain to such employment. ⁵⁰⁶ “3. At the expiration of the first year of said employment, Rosenthal agrees to purchase with the money payable to him as the balance of the salary, stock of said Company of the par value of $6,100.00 and at the end of second year, in the same manner, stock of the par value of $6,100.00, so that at the expiration of the two years of this contract, he shall be the owner of stock of said Company of the par value of twelve thousand two hundred dollars ($12,200). Should the said Rosenthal wrongfully leave the employment, during the term of this agreement, then any -amounts to which he would have been entitled as unpaid salary which has not been used in the purchase of stock as provided for in this agreement shall be forfeited by said Rosenthal, said Rosenthal being entitled to said additional .compensation of $6,100.00 per year only should said Rosenthal complete his services under this contract for the full term of one year. Should the employment of said Rosenthal be wrongfully terminated during the course of this contract by Company or "Woelfel, then said Rosenthal shall be entitled immediately to any unpaid salary credited to him under this agreement and shall be under no obligation to purchase any of the stock of this Company with said unpaid salary.

Should this event, that is, the discharging of Rosenthal prior to the termination of this agreement by Company or Woelfel, or the breach of this agreement by Company, occur during the second year of this contract, if Rosenthal shall have already purchased stock of the Company of the par value of $6,100.00, Company and Woelfel hereby agree to repurchase from said Rosenthal said stock at its par value. “The rights herein conferred upon Rosenthal upon breach of this agreement are in addition to any other rights which he might have at law or in equity. “4. At the expiration of the term of this agreement, should Rosenthal and said Company fail to agree upon a satisfactory continuation of his employment as General Manager of said Company for an additional ⁵⁰⁷ term, Woelfel and Company agree that they will purchase any of the stock of the Company obtained by Rosenthal under the terms of this agreement from said Rosenthal at the par value of said stock, said purchase to be for cash or for such other terms as are satisfactory to said Rosenthal. In the event that no other terms are agreed upon, cash shall be paid on the twenty-third day of March, 1926. “5. The obligations of Company and Woelfel herein shall be joint and several. “6.

Company will execute such further assurances as shall be necessary to effectuate the intention of this agreement and shall do all things necessary to convey clear title to any stock which said Rosenthal may purchase hereunder. “As Witness the seal of said Company and the hands of its President, and the hands and seals of second and third party. “Reed and Fibre Products Corporation, “By John G. Woelfel, “President. “Justin J. Rosenthal. -(Seal) “John G. Woelfel. (Seal) “Attest: George Cook, Jr., “Secretary. “(Seal) “Witness: Geo. Cook, Jr. “July 21, 1924.” The bill further alleges that Rosenthal faithfully complied .with all provisions of the contract and performed all the duties therein required of him until the 23rd day of March, 1926, at which time, in order to give the parties to the said contract additional time to negotiate renewal in accordance with, the terms of said contract, Rosenthal addressed to said corporation a letter reserving all rights in reference to the sale of stock to be issued to him as set forth in the contract, and consenting to an interim employment for two weeks. This letter demanded the issuance of the stock for the sum of $12,200 as provided by the contract and the ⁵⁰⁸ terms of the said letter were accepted by the corporation and Woelfel.

This letter is also filed as an exhibit with the bill and is in terms following: “March 23, 1926. “Reed & Fibre Products Corporation: “Inasmuch as my contract of employment as General Manager expires today and we have not agreed upon terms of a new contract, I hereby agree to continue as General Manager for the term of two weeks at the sum, of one hundred and twenty-five dollars ($125.00) a week, it being distinctly understood, however, that this agreement is not to be construed as a satisfactory continuation of my employment within Paragraph 4 of my employment contract, and that should a satisfactory agreement not be reached during the. two weeks herein provided for for a satisfactory continuation of my employment as set forth in Paragraph 4 of that agreement, all of the rights reserved to me under that agreement shall immediately go into effect. “In other words, this period of employment for two weeks is mei*ely to enable us to continue negotiations for my future employment satisfactory to all parties, and is in that respect merely a temporary waiver of my rights under the agreement of May . ..., 1924. “I have not yet had actually issued to me the $12,-200 stock provided for in the aforesaid agreement, and you are immediately to issue that stock to me so that I can be in position to dispose of it in accordance with the aforesaid agreement, should a satisfactory continuation not be agreed upon between us. “Yery truly yours, “Justin J. Rosenthal. “Accepted: “Reed & Fibre Products Corporation, “(Seal) “By John G. Woelfel, Pres. “John G. Woelfel. (Seal) “Melvin F. Stern.” ⁵⁰⁹ That the said corporation has authorized and unissued capital stock sufficient to enable it to comply with its obligations to Rosenthal under said contract, without any amendment to its charter. That Woelfel owns over ninety per cent, of the capital stock of said corporation now issued and outstanding, and through the ownership of said corporate stock controls the entire policy of the corporation. That said Woelfel by a vote of his stock can and does control all of the directors of said corporation, by removal and by election of directors amenable to his wishes, and by vote of his stock can authorize all things which said corporation can do and is authorized to do under the laws of the State of Maryland, including the authorization of issuance of stock at less than par.

That Woelfel is president of said corporation, with all the rights and powers of the president, and can call regular and extraordinary meetings whenever it may be necessary to have such meetings to carry on the affairs of said corporation and comply with the obligations imposed upon the corporation. That said corporation is a close corporation, having as stockholders only Woelfel and his associates ; that the stock is not listed on any exchange and there is no market in which it can be purchased; that exclusive of the shares owned by Woelfel, less than fifty shares of such stock are outstanding. That on or about the 23rd day of October, 1926, Woelfel filed in the Circuit Court of Baltimore City a bill against the said corporation praying for the appointment of a receiver, the dissolution of the corporation, and an injunction against the corporation preventing its officers from disposing of its assets. This bill set forth that Woelfel was the largest stockholder and creditor of the corporation; that the corporation was unable to meet its obligations as they matured, and was insolvent under the laws of the State of Maryland, though its assets were in excess of its liabilities.

The corporation, on the same day upon which the bill was filed, pursuant to the direction of Woelfel, filed an answer to said bill, admitting the allegations of the bill and submitting to the action of the court; and upon said bill and answer a ⁵¹⁰ decree was passed appointing Edward L. Ward receiver of the assets of said corporation, but no further action has been taken upon the prayers of said bill. That in those proceedings Woelfel and the corporation state that the assets of the corporation total the sum of $59,-450.41 and the liabilities the sum of $48,232.83, excluding the liability of said corporation to Rosenthal on the contract referred to. The bill in this case further alleges that, by the inclusion of said liability of the corporation in the sum of $12,200 to Rosenthal, the said corporation is insolvent, and that, therefore, to issue the stock of said corporation in consideration of the obligation of the corporation to Rosenthal would require formal action by the board of directors and the stockholders, and the filing of a stock issuance statement in accordance with article 23, section 43, Code of 1924, inasmuch as said stock would be issued for less than the par value thereof.. That Woelfel has continually delayed taking the necessary corporate action to do all things necessary to issue Rosenthal the stock to which he is entitled, through the board of directors whom Woelfel controls, and by a vote of his controlling interest in the capital stock of the corporation; that Woelfel has finally filed a bill for receiver, in pursuance of a plan to defeat the rights of Rosenthal against said Woelfel under the contract, and to enable Woelfel to escape his just obligations to Rosenthal thereunder; that the purpose of Woelfel in filing the bill for receiver and the dissolution was in pursuance of his desire and plan to deprive Rosenthal of his rights against Woelfel by making it impossible for the corporation to issue the stock to which Rosenthal was entitled.

The bill finally alleges that Rosenthal has no adequate remedy at law, and that the court should assume jurisdiction in the case in order to avoid a multiplicity of suits and a circuity of action, which would, other wise be necessary to do equity to Rosenthal. The prayers of the bill are: That the agreement between the corporation, Woelfel and Rosenthal be specifically enforced; ⁵¹¹ That the corporation may be decreed to issue to Rosenthal one hundred and twenty-two shares of the capital stock of said corporation of the par value of $100 per share, fully paid and non-assessable; That Woelfel call a meeting of the board of directors and cause said directors, through his control, to adopt a resolution advising the stockholders to authorize the issuance of one hundred and twenty-two shares of the capital stock of the corporation, and call a meeting of the stockholders to take action thereon; and further, that Woelfel, at said meeting of stockholders, cause his stock to be so voted as to authorize the issuance of said stock, and cause said corporation to prepare and file a statement in the form prescribed by the State Tax Commission of Maryland, with reference to the issuance of stock, as provided by article 23, section 43, Code of 1924; That Edward L. Ward be enjoined from proceeding as receiver with the dissolution of the corporation pending the termination of this suit and until after the issuance of the stock; That the court having assumed jurisdiction proceed at equity and avoid the circuity of action by giving a monetary decree of $12,200, plus interest from March 23, 1926, against Woelfel in accordance with the terms of the contract. There is also a prayer for general relief. As stated, the corporation and Edward L. Ward, receiver, filed jointly their demurrer to the bill of complaint, Woelfel filing a separate demurrer on his behalf to the said bill.

The grounds of these demurrers are, that the alleged contract is invalid and unenforceable against the corporation and the receiver thereof in a court of equity; that the alleged contract is not specifically enforceable in a court of equity; that the complainant has not stated in his bill such a cause as to entitle him to the relief sought and prayed for therein; that a court of equity has no jurisdiction to grant the relief prayed in said bill; that the complainant has a full, complete and adequate remedy at law; that said amended bill of complaint is multifarious as to parties and subject-matter. ⁵¹² From the foregoing statement of the allegations contained in the bill, it will be seen that the contract here sought to be specifically enforced was made, executed, and signed by three parties: First, by the corporation, by Woelfel as its president, with the seal of the corporation affixed, duly attested by the secretary thereof; second, by Justin J. Eosenthal, under seal, and, third, by John GT. Woelfel, under seal; and being additionally witnessed by George Cook, Jr. It is therefore apparent that, in so far as its execution is concerned, this contract is the contract of the corporation and legally binding upon it. What is said in reference to the legality of the execution on the part of the corporation is true in respect to the execution by the other parties to the contract. From a reading of the contract, together with the other allegations of the bill, it is clear that this contract was one by which the corporation was to receive the services of Eosenthal for the period of two years, these services to be rendered in the position of general manager, and in consideration of the salary or remuneration specifically set forth in the contract.

We are aware of no legal.obstacle which would prevent a corporation from making such a contract. By this contract it secures the services of an officer or employee, it being ostensibly for the mutual benefit of the corporation and Eosenthal, the corporation thereby receiving the services of Eosenthal, and in turn he being entitled to the salary or compensation agreed upon. Woelfel, for all practical purposes, being the corporation, owning more than ninety per cent, of the outstanding capital stock, knowing that what would be for the benefit of the corporation would also inure to his benefit as the owner of nearly all of its stock, signed the contract for the purpose of assenting to the performance of certain of its provisions by the corporation, thereby making it certain that Eosenthal would secure the benefits of his contract with the corporation, for which benefits his services had been rendered. The obligation imposed upon Eosenthal by the contract has been fully and faithfully complied with, and the corporation and Woelfel, its practical owner, have reaped ⁵¹³ the benefits secured to it and him by the terms of the contract.

We have here a contract, duly executed by parties competent to contract, the terms of which are fair and reasonable, which has been fully and faithfully complied with by Eosenthal, and affirmed and ratified by the other parties thereto continuously over a period of two years, the full term of the contract, as evidenced by the acceptance of the service rendered. This presents a case which strongly appeals to a court of equity for relief, and it should be granted unless there be some well-settled legal or equitable principle which would be a bar. The fourth paragraph of the contract, dealing with the contingency of Eosenthal and the corporation failing to agree, at the expiration of the term of the agreement, upon a satisfactory continuation of his employment as general manager for an additional term, provides that Woelfel and the company agree that they will purchase any of the stock of the company obtained by Eosenthal under the terms of the agreement from said Eosenthal at the par value of said stock, the said purchase to be for cash or on such other terms as are satisfactory to Eosenthal, and in the event that no other terms are agreed upon, cash shall be paid him on the 23rd day of March, 1926. It is objected by Woelfel and the corporation that this clause of the contract renders it null and void, for the reason that it is illegal for a corporation to purchase its own stock.

There is cited in support of this contention Maryland Trust Co. v. National Mechanics Bank, 102 Md. 608 . In that