Samplid Enterprises, Inc. v. First Vermont Bank (95-347); 165 Vt 22; 676 A.2d 774
[Opinion Filed 08-Mar-1996]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
Samplid Enterprises, Inc. Supreme Court
On Appeal from
v. Windsor Superior Court
First Vermont Bank January Term, 1996
Alan W. Cheever, J.
Bruce M. Lawlor of Lawlor & Koitto, Springfield, for plaintiff-appellant
John A. Serafino of Ryan Smith & Carbine, Ltd., Rutland, for defendant-appellee
PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.
GIBSON, J. Plaintiff entered a purchase and sale agreement to buy
property defendant had obtained by deed in lieu of foreclosure, and sued
defendant for return of its deposit after the transaction failed to close.
Defendant counterclaimed against plaintiff and brought a third-party action
against Gertrude Holl, plaintiff's president, who was to take title. The
court granted defendant's motion for summary judgment. We affirm.
Defendant received title to the real property at the center of this
dispute via deed in lieu of foreclosure from Classical Chef, Inc. in 1993,
pursuant to an agreement between defendant and Classical Chef. That
agreement was executed by the president of Classical Chef and two of its
four shareholders, representing 90% of the voting power of the corporation.
Defendant took title to the real and personal property and listed it for
sale. In January 1994, the parties entered into a purchase and sale
contract for the purchase of the property for $135,000, and a
deposit of $13,500 was paid to the broker. The contract provided for a
closing on March 7, 1994, but it did not state that time was of the
essence, nor did it include a financing contingency.
On March 4, 1994, counsel for plaintiff notified defendant that
missing from critical documents in the chain of title was a corporate
resolution from Classical Chef, as required under the then-applicable
statute, 11 V.S.A. § 2002,(FN1) raising a question about the validity of the
transfer from Classical Chef to defendant, and hence from defendant to
The parties thereafter proceeded on the basis that defendant would
arrange for title insurance to cover any potential claim arising out of the
alleged failure to comply with § 2002. Counsel for plaintiff objected to
the coverage language of the first draft submitted for approval, suggesting
removal of a policy exception and an adjustment in the coverage language to
insure that the corporate problem was within the coverage.
A trial affidavit of plaintiff's counsel concedes that on April 6,
1994 he was advised that the title insurance company was willing to issue a
policy omitting the exception objected to. Counsel further stated:
11. That on 7 April 1994, defendant, through its counsel, notified
me that the corporate resolution I had requested from Classical Chef,
Inc. to bring it into conformity with 11 V.S.A. § 2002 had still not
been executed. At that time, I declined to accept the documentation
proffered by the defendant and, pursuant to Paragraph 12 of the
Purchase and Sale Contract, further declined to extend the date for
closing; . . . .
In plaintiff's memorandum of law opposing defendant's motion for summary
judgment, the only objection noted to the April 6, 1994 version of the
title insurance policy was that "defendant had yet to secure a resolution
executed by the minority shareholders." The same memorandum noted that
defendant was still pursuing acquisition of a corporate resolution from
Classical Chef when the time for performance expired. The court found,
however, and plaintiff did not contest, that as of April 7, 1994 defendant
had tendered a corporate resolution signed by two Classical Chef
shareholders representing a 90% ownership interest.
The closing did not occur for the reasons stated in the trial
affidavit of plaintiff's counsel. The real estate broker for the
transaction retained the deposit of $13,500,(FN2) and plaintiff brought the
present action for its return. Defendant moved for summary judgment, which
the court granted, concluding that defendant took title via a mortgage
deed, no shareholder of Classical Chef had grounds to complain, and
defendant was ready, willing and able to convey title on April 7, 1994.
Gertrude Holl's motion to be dismissed as third-party defendant was denied.
Plaintiff's appeal followed.
Summary judgment is appropriate only where the moving party
establishes that there is no genuine issue of material fact and that the
party is entitled to judgment as a matter of law.
Murray v. White, 155 Vt. 621, 628, 587 A.2d 975, 979 (1991); V.R.C.P.
56(c). In determining whether a genuine issue of fact exists, the
nonmoving party receives the benefit of all reasonable doubts and
inferences. Pierce v. Riggs, 149 Vt. 136, 139, 540 A.2d 655, 657 (1987).
Allegations to the contrary must be supported by specific facts sufficient
to create a genuine issue of material fact. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 249-50 (1986).
In the present case, there is no factual dispute that as of April 7,
1994 defendant had in hand a corporate resolution of Classical Chef
authorizing transfer of the property to defendant, executed by shareholders
representing 90% of the ownership interest, that the second mortgage of the
shareholders had been discharged, and that the shareholders had executed
documents terminating their security interest in the personalty associated
with the property. It is also not disputed that on April 6, 1994 defendant
tendered a title insurance policy that purported to address plaintiff's
In light of these uncontested facts, plaintiff's arguments are
essentially two-fold: first, that defendant had not obtained all signatures
of Classical Chef's shareholders before the time for performance expired,
and second, that as to the title insurance, the policy specifically
exempted from coverage claims arising as the result of Classical Chef's
noncompliance with the law. Neither argument is legally supportable.
Either a legally effective corporate resolution or a timely, complete, and
effective title policy would have sufficed to satisfy plaintiff's demands.
Both were tendered no later than April 7, 1994.
Corporate Resolution. Though plaintiff's argument is not specific,
its only substantive objection to the resolution tendered on April 7, 1994
(i.e., other than timeliness) appears to be the absence of notice of the
shareholders' meeting at which the resolution was adopted. Plaintiff
relies on the proposition that shareholders representing 10% of the
corporate stock might seek to upset the foreclosure deed to defendant on
the basis of an absence of notice. Plaintiff argues that 11 V.S.A. § 2002
was designed to protect minority shareholders from the kind of general
corporate mismanagement that in the end resulted in the company's failure
and resultant default and foreclosure. Whatever mismanagement might have
occurred within the company, however, is not addressed by § 2002, whose
purpose is not to redress general mismanagement but to bar majority
shareholders from unfairly dealing with minority owners in the sale of
assets other than in the ordinary course of business. Hospitality Inns,
Inc. v. South Burlington R.I., Inc., 153 Vt. 410, 415, 571 A.2d 40, 43
In the present case, the minority shareholders could not have
prevented foreclosure, nor could they have affected the amount of proceeds
credited to the shareholders as a result of the sale in lieu of
foreclosure. Plaintiff offers no theory under which the majority
shareholders of Classical Chef could have obtained any benefit, or minority
shareholders could have suffered any detriment, from the sale in lieu of
foreclosure, as opposed to statutory foreclosure. Consequently, any absence
of notice was harmless. See McDermott v. Bear Film Co., 33 Cal. Rptr. 486,
489 (Cal. Ct. App. 1963) (failure to give notice of shareholders' meeting
to holders of 25% of stock harmless where approval of holders of remaining
75% was obtained for transfer of assets, applying Oregon law); see also
Phillips Petroleum Co. v. Rock Creek Mining Co., 449 F.2d 664, 667 (9th
Cir. 1971) (if requisite number of shareholders acquiesce in transfer of
assets, transfer cannot be set aside by nonconsenting minority, applying
Idaho law); Rodgers v. Baughman, 342 N.W.2d 801, 807 (Iowa 1983) (where
statute required majority approval, informal action by 85% of shareholders
was sufficient); 6A C.R. Keating & S.M. Flanagan, Fletcher Cyclopedia of
the Law of Private Corporations § 2949.2.10, at 761 (1989) (if required
number of stockholders individually consent, it is as effective as if they
voted at formal meeting).
The logic of this principle is reinforced here, where defendant
obtained title to the subject property by foreclosure, not by negotiation
with the corporation or with any group of its shareholders. The
opportunity for any self-dealing was nil.
In sum, plaintiff offers no theory under which the omission of notice
representing 10% of the ownership was more than a technical omission and
constituted a cloud on the title. Notice could not have warded off
foreclosure, nor were the majority shareholders in a position to alter the
financial facts as reflected on the books of Classical Chef.
Title Insurance. Though the purchase and sale agreement did not
provide for title insurance, plaintiff does not deny that it accepted the
concept of title insurance as a means of remedying the asserted defect in
Classical Chef's corporate resolution. Moreover, plaintiff concedes that
the policy tendered on April 7, 1994 would have been adequate if submitted
by April 4, 1994, plaintiff's interpretation of the closing deadline under
the purchase and sale agreement. Plaintiff seizes on this date, because
its attorney notified defendant of the claimed title defects on March 4,
1994; however, plaintiff misreads paragraph 20 of the purchase and sale
agreement, which states in relevant part:
20. . . . If, at the expiration of thirty (30) days following the receipt
of such notice [of encumbrances or defects] or on the date set for
closing, whichever is later, Seller is unable to convey
marketable title free and clear of such encumbrances
and defects, Purchaser may terminate this contract, and
if so shall receive back all deposit money . . . .
(Emphasis added.) Termination might have occurred as early as April 4,
1994 under this provision, but it was not automatic. The trial affidavit of
plaintiff's counsel concedes that plaintiff did not attempt to terminate
the contract until April 7, 1994. On that day, defendant offered to sell
the subject property, together with title insurance, the inadequacy of
which plaintiff does not explain and which it concedes was adequate a few
days earlier. Beyond this concession, plaintiff offers no theory of
invalidity in its brief before this Court.
Having disposed of plaintiff's objections to the corporate resolution
and its timeliness argument with respect to the title insurance, we
conclude that there were no genuine issues of material fact before the
court and that it properly granted defendant's motion for summary judgment.
We need not reach or consider the trial court's rationale that § 2002
could not apply to a deed in lieu of foreclosure as a matter of law. Even
if that rationale were incorrect, the court's action was proper. See
Harlow v. Miller, 147 Vt. 480, 483, 520 A.2d 995, 998 (1986) (Court may
affirm judgment where right result was reached for wrong reason).
FOR THE COURT:
FN1. 11 V.S.A. § 2002 was repealed, 1993, No. 85, § 3(a), eff. Jan.
1, 1994. It stated in relevant part:
A sale . . . of all, or substantially all, or substantially all, the
property and assets, with or without the goodwill, of a corporation, if
not made in the usual and regular course of its business, may be made
upon such terms and conditions and for such consideration . . . as may
be authorized in the following manner:
. . .
(2) Written or printed notice shall be given to each shareholder of
record entitled to vote . . . .
(3) . . . Such authorization shall require the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
corporation . . . .
FN2. Paragraph 21 of the agreement states in relevant part:
Default: If Purchaser fails to close as provided herein, or is
otherwise in default, Seller may terminate this contract by
written notice to Purchaser and retain all Contract Deposits as
liquidated damages, or may pursue all legal and equitable
remedies provided by law. . . . If Seller fails to close as
provided herein, or is otherwise in default, Purchaser may
terminate the contract by written notice to Seller and shall
receive back all deposit money and may pursue Purchaser's rights
to all legal and equitable remedies provided by law.