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Seifert v. Solem

December 27, 1967


Hastings, Chief Judge, and Schnackenberg and Fairchild, Circuit Judges.

Author: Hastings

HASTINGS, Chief Judge.

Defendant-appellant appeals from a judgment of $84,544.75 compensatory and exemplary damages entered in favor of plaintiff after trial to a jury. The jury found, based on the allegations in the complaint, that appellant made false representations and failed to make certain disclosures to plaintiff, all to plaintiff's injury and resulting loss.

The facts are in considerable dispute. In April, 1958, plaintiff was a shareholder and general manager of American Knife Company (American), a New York corporation located at Baldwinsville, New York. The corporation's principal product was an ensilage knife used in agricultural machinery. Plaintiff and the other shareholders were parties to a stock option agreement giving each shareholder the first option on another's shares. Plaintiff and another shareholder were also members of a partnership selling some of the corporation's products. Plaintiff's salary from the corporation was $7,000 per year, in addition to which he received $7,679.36*fn1 in partnership income in 1956 through 1958, inclusive.

According to plaintiff, appellant came to plaintiff's office on April 25, 1958. Appellant asked whether American was for sale and stated he wished to merge it with Anderson Knife & Bar Company (Anderson) at Anderson, Indiana, which appellant had acquired. Appellant indicated that he wished to reactivate Anderson, which had been dormant for several months. He indicated that he needed heat treating equipment, which American had, and a manager.

Plaintiff told appellant he had invested all his savings in American, that it was his livelihood, and that he would not sell his stock in American. He advised appellant that the remaining stock in American was probably for sale, but that he had the first option to acquire it. He agreed to waive his option if appellant and the other American shareholders arrived at an agreement for the sale of the stock to appellant.

Plaintiff also told appellant that if there were a merger between American and another company, he would trade his American stock for stock in the surviving company and continue his manager-share-holder relationship with the surviving company.

Plaintiff testified that although there was no agreement between him and appellant, appellant stated that if the sale were consummated, the physical assets would be moved to Anderson and plaintiff would become general manager of the Anderson plant.

In June, 1958, appellant purchased, with plaintiff's approval, all the stock of American except seventy-five shares (approximately twenty-eight percent of the outstanding shares) held by plaintiff. Plaintiff and appellant formed a new partnership for the sale of American's products.

After appellant's stock purchase, plaintiff remained as president of American. During the summer and fall of 1958, he supervised the dismantling of American's Baldwinsville plant and the shipment of its equipment to Anderson's plant. In December, 1958, he moved into a house he had purchased at Anderson, Indiana. He then began acting as manager of Anderson's plant.

On December 18, 1958, at plaintiff's house, appellant suggested the necessity of liquidating American. Consistent with an oral agreement, plaintiff insisted on an exchange of his American stock for stock of equal value in "the Anderson operation." Appellant was strongly opposed to an exchange of stock and urged plaintiff to sell for cash since it would be long before stock in the Anderson operation would be worth very much. After a lengthy discussion appellant agreed to exchange 8,000 shares (later increased to 8,250 shares) of Anderson stock for plaintiff's American stock. Plaintiff estimated the value of the American stock at $12,375.

The exchange of stock was consummated on December 31, 1958. At that time plaintiff believed Anderson to be an operating company and believed his position to be that of general manager.

On February 5, 1959, appellant asked plaintiff to witness appellant's signature on a document. Plaintiff started to read the document, but was told by appellant that he need not read it, as it was a routine matter. Plaintiff signed it as a witness without reading it. The document was a lease agreement by which Anderson leased to Wisconsin Knife Works (Wisconsin), a partnership wholly owned by appellant and his wife, all of its real and personal property for five years at a rental of $2,500 per month. The lease agreement purported to affirm a verbal contract made on or about January 1, 1958.

On August 25, 1959, plaintiff and appellant agreed to settle their partnership interests. On October 20, 1959, appellant terminated ...

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