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Laystrom v. Continental Copper & Steel Industries Inc.

May 7, 1957


Author: Schnackenberg

Before MAJOR, LINDLEY and SCHNACKENBERG, Circuit Judges.


Plaintiffs (sometimes referred to as the sellers) are 31 persons who, together with 11 other persons, on July 22, 1944 entered into an agreement to sell to Chester A. Bowles practically all of the outstanding shares of capital stock of Quality Hardware and Machine Corporation (herein referred to as Quality). In 1946 Bowles assigned his interest to defendant.

Plaintiffs brought this suit on September 5, 1951 to recover what they claimed was due them on the purchase price. After a trial without a jury, the district court entered a judgment for defendant on July 29, 1955, and thereafter denied plaintiffs' motions to set aside the court's prior findings of fact and conclusions of law, to vacate the judgment aforesaid and to grant plaintiffs a new trial. From the final judgment and the subsequent orders plaintiffs appeal.

We now refer to relevant parts of the 1944 agreement.

Paragraph 2(a) provided that the sellers were to be paid a sum equal to the net worth of Quality as of July 31, 1944, and paragraph 2(b) stipulated that six payments were to be made to sellers equivalent to 50% of the net profits of the business of Quality computed "as herein provided," for the five years commencing August 1, 1944 and ending July 31, 1949. Paragraph 3(b) provided that the amounts payable under paragraph 2(b) should be paid on March 15, 1945 and March 15th of each succeeding year thereafter, final payment to be made March 15, 1950. In paragraph 5 it was stated that the six payments to be made by the buyer as part of the purchase price, in accordance with paragraph 2(b).

"* * * shall be based upon the net profits of the business of Quality after deducting for Federal income and excess profits taxes applicable to each calendar year and after adjustments for renegotiation. The first payment is to cover the last five months of the year 1944; the next four payments are to cover each of the succeeding calendar years thereafter; and the final and sixth payment is to cover the first seven months of the year 1949."

Paragraph 6 provided that the buyer would employ accountants to audit Quality's books and accounts at least annually, would deliver to sellers a copy of the annual audit by March 15 of each year, and would give them the right to have their own accountants examine the books and records of the buyer and all records of the auditors employed by the buyer.

By paragraph 7 the nine principal plaintiffs, who were the then executive officers of Quality, were retained as its executive officers for the five year period in question.

By paragraph 9 all of the sellers designated plaintiff C. A. Laystrom as their agent for the purpose of receiving payments of the purchase price and "without any limitation, for the purpose of taking any and all other action or steps to be taken by Sellers hereunder."

The evidence shows that plaintiff Hazel Minter, a sister-in-law of C. A. Laystrom, continued as secretary of Quality and thereafter became assistant treasurer of defendant, and throughout the period in question and until 1951 she was in charge of the office, credit and bookkeeping, under the general supervision of plaintiff Leonard S. Laystrom.*fn1

Plaintiffs were paid approximately $900,000 on July 31, 1944 for the net worth of the company. Later they received $84,036.66 as full payment, satisfaction and discharge of all claims and demands up to and including December 31, 1945. For the last five months of 1944 and for the calendar years 1945 and 1946, total payments were in excess of $1,000,000. These amounts are not disputed. It is conceded by all parties that there were no net profits in the calendar year 1947.

Plaintiffs claim that the agreement required that "net profits" were to be computed for, and paid in, each accounting period and that the computation of plaintiffs' share of "net profits" for each such period was to be made without regard to losses in other periods.

The question is thus presented as to whether Quality had any net profits in the last year and seven months of the five year period, that is to say, in the calendar year 1948 and the first seven months of the calendar year 1949. The case also presents the issue of whether certain reserves established June 30, 1948 and June 30, 1949 on the books of Quality respecting the so-called "hair dryer" inventory, and reserves established December 31, ...

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