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Read Mullan Motor Co. v. McAtee

Supreme Court of Arizona

April 12, 1954


[77 Ariz. 189] Jennings, Strouss, Salmon & Trask, by O. M. Trask, Phoenix, for appellant.

Evans, Hull, Kitchel & Jenokes, by Norman S. Hull & Earl Carroll, Phoenix, for appellee.

PHELPS, Chief Justice.

This is an appeal from a judgment of the Maricopa County Superior Court in favor of plaintiff-appellee John L. McAtee and against defendant-appellant Read Mullan Motor Company, a corporation, and from an order denying defendant's motion for a new trial. The cause as to defendants Read Mullan and W. R. Wayland was dismissed in the lower court from which no appeal was taken.

The transactions out of which this litigation arose are in substance as follows: In September 1944, plaintiff McAtee, Read Mullan and W. Roy Wayland formed a partnership known as 'Consolidated Motors' by an instrument in writing, primarily to engage in the business of selling new and secondhand motor vehicles, parts, accessories, etc., but also to engage in other businesses and activities as well. In 1948 the Read Mullan Motor Company, a corporation, was organized by the copartners to operate a portion of the automobile business. Each of the three parties was issued one qualifying share of the capital stock of the corporation and the balance of 497 shares were issued to the partnership. Mullan was made president of the corporation, W. Roy Wayland--vice president, and plaintiff-secretary-treasurer, and later vice president. Mullan owned 70% of the copartnership business, Wayland 20% and plaintiff 10%. The stock in the corporation was held by the partners in the same proportion.

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At the time the partnership was formed the copartners entered into a separate written agreement giving to Mullan an option to purchase the partnership interest of the other partners (which would include their interest in the defendant corportion subsequently organized) at inventory value plus 10% by giving 30 days' notice in writing.

In February, 1951, Mullan by notice in writing, exercised his option to acquire the interest of plaintiff in the partnership as of March 31, 1951, and began negotiations with plaintiff to agree upon or establish in accordance with the terms of the option agreement, the purchase price of his interest in the partnership and its various activities including the defendant corporation. On March 31, 1951, plaintiff [77 Ariz. 190] tendered his resignation as a director and officer of the corporation and surrendered his stock therein.

The specific controversy here arose out of plaintiff's claim against defendant for a bonus or additional compensation based upon the provisions of a resolution adopted by the board of directors of defendant corporation fixing the salary of plaintiff '* * * at $600 per month plus 10% of the first $80,000 of the earnings of the company each year; * * *.' The salary of $600 per month was paid to plaintiff monthly but upon the dissolution of the partnership plaintiff claimed that under the provisions of the resolution he was entitled to additional compensation of 10% of the profits of the corporation accumulated as of March 31, 1951, which the corporate records showed to be $69,372.04. Plaintiff alleged that defendant made in excess of $80,000 net profit during the year 1951 and this is admitted by defendant. It is defendant's contention, however, that plaintiff is entitled to that proportion of 10% of the $80,000, or $8,000, which the number of months worked by him for defendant during 1951 bears to the total of 12 months or one-fourth of $8,000 or $2,000. Defendant tendered the sum of $2,000 to plaintiff in the form of a check on January 3, 1952. This tender was rejected and an action brought to recover $6,937.20 and interest, being 10% of the net profits earned by defendant up to and including March 31 of that year. The resolution adopted by the directors of defendant corporation will be hereinafter set out haec verba.

The cause was tried to the court sitting without a jury and judgment entered against defendant for the full amount. Defendant has presented three assignments of error:

Assignment No. 1 is based upon the court's ruling that the proviso in the resolution adopted by it constituted a part of the agreement between plaintiff and defendant and upon its refusal to reform the contract to exclude said proviso for the reason that the evidence does not support such ruling;

Assignment No. 2 asserts that the court erred in granting judgment in favor of plaintiff and against defendant for the reason that it is contrary to the express terms of the agreement;

Assignment No. 3 asserts that the court erred in sustaining plaintiff's objection to certain questions propounded by counsel for defendant to his witness James W. Coombs, a certified public accountant.

The question presented for our determination we believe to be purely one of law. Its solution depends upon the interpretation given to the resolution above mentioned, adopted by defendant on February 1, 1948. The resolution reads as follows:

'Upon motion duly made and seconded the salary of John L. McAtee is fixed at $600.00 per month plus [77 Ariz. 191] 10% of the first $80,000.00 of the earnings of the company each year; the $600.00 per month to be paid monthly and the 10% of the earnings to be paid on the 15th day of January following the close of the year; provided, that in the event of death or termination of employment the total amount of the monthly salary and percent of earnings shall become immediately due and payable.'

The court below ruled that the resolution was ambiguous and admitted testimony from both plaintiff and defendant to aid ...

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