Samplid Enterprises v. First Vermont Bank

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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
  to press.

                                 No. 95-347

Samplid Enterprises, Inc.                         Supreme Court

                                                  On Appeal from
    v.                                            Windsor Superior Court

First Vermont Bank                                January Term, 1996


Gertrude Holl

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
  to shareholders


  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:

                              Associate Justice


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.

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