BUILDING INDUSTRIES, INC. v. WRIGHT PRODUCTS, INC

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Docket Number

No. 36,050.

Attorney(S)

Neumeier, Harrigan Eckberg, for appellant. A. H. Markert and John A. Burns, for respondents.

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Smart Summary

Factual and Procedural Background

This case arises from an action in the district court of Washington County seeking specific performance of an option agreement contained in a lease between defendant Wright Products, Inc. (the lessor) and plaintiff Building Industries, Inc. (the lessee), whose rights were assigned to plaintiff Bernard A. VanderHeyden. The lease, executed in January 1946 by the original Wright Products, Inc., granted Building Industries, Inc. the option to purchase the leased premises for $8,500 before the lease expired. The original Wright Products, Inc. had commenced voluntary dissolution proceedings in 1944, but no certificate of dissolution was shown to have been filed. A new corporation also named Wright Products, Inc. was organized in 1947, allegedly with the same officers and shareholders as the original corporation. Building Industries, Inc. exercised its option in 1948 by notifying defendant and requesting clear title. Defendant quieted title to the property but rejected a tender of the purchase price made in 1951 by plaintiffs’ attorney, who represented both Building Industries, Inc. and VanderHeyden. Plaintiffs then brought suit for specific performance. The trial court ruled in favor of plaintiffs, ordering defendant to convey the property by warranty deed. Defendant appealed from the denial of its motion for a new trial. The Supreme Court of Minnesota affirmed the trial court's order.

Legal Issues Presented

Whether the lease and option agreement were void ab initio due to the alleged termination of the original Wright Products, Inc. corporation prior to the lease execution.
Whether the tender of the purchase price by plaintiffs was sufficiently definite and effective to exercise the option.
Whether plaintiffs were entitled to demand a conveyance by warranty deed despite the option agreement being silent on the type of conveyance required.

Arguments of the Parties

Defendant's Arguments

The lease was void ab initio because it was entered after the original corporation had been terminated, thus violating M.S.A. 300.59 which limits corporate activity after termination.
The tender of purchase price was indefinite and confusing, particularly because it included a request for the deed to be made to Bernard A. VanderHeyden, whose assignment was allegedly unknown to defendant.
The plaintiffs were not entitled to demand a warranty deed since the option agreement did not specify the type of deed required.

Plaintiffs' Arguments

There was no evidence that the original Wright Products, Inc. had been terminated by filing a certificate of dissolution as required by statute, so the lease was valid.
The tender of the purchase price was sufficiently definite and offered the defendant the alternative to convey to Building Industries, Inc., alleviating any alleged confusion.
Where an option agreement is silent on the type of conveyance, there is an implied obligation to convey marketable title, which includes the right to demand a warranty deed.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Poehler v. Reese, 78 Minn. 71, 80 N.W. 847	Rejecting technical objections to tenders of purchase price in exercising options.	The court found defendant's objection to the tender was a mere technicality lacking merit.
Drake v. Barton, 18 Minn. 414	Implied obligation in land sale contracts to convey marketable title by deed with usual covenants (warranty deed).	Supported the conclusion that plaintiffs were entitled to demand a warranty deed despite silence in the option agreement.
Summers v. Midland Co., 167 Minn. 453, 209 N.W. 323, 46 A.L.R. 816	Same as Drake v. Barton, regarding implied warranty of title in land sale contracts.	Reinforced the court's application of the implied obligation to convey marketable title by warranty deed.
Fleckten v. Spicer, 63 Minn. 454, 65 N.W. 926	Support for the right to demand a warranty deed in land conveyance contracts.	Used to affirm plaintiffs' entitlement to a warranty deed conveyance.

Court's Reasoning and Analysis

The court began by addressing defendant's contention that the lease was void because the original Wright Products, Inc. had been terminated prior to the lease execution. The court held that the statutory limitation on corporate activity after termination (M.S.A. 300.59) was inapplicable because there was no evidence that the required certificate of dissolution had been filed under § 301.56. Without such filing, the corporate existence was not conclusively terminated, and the lease remained valid.

Next, the court considered the sufficiency of the tender of the purchase price. Defendant argued the tender was ineffective due to confusion arising from the request that the deed be made to VanderHeyden. The court found no evidence of actual confusion at the time of tender refusal and noted that defendant was offered the option to convey directly to Building Industries, Inc. The court viewed defendant's objection as a technicality without merit, relying on precedent to support this conclusion.

Finally, the court analyzed whether plaintiffs could demand a warranty deed when the option agreement was silent on the form of conveyance. The court recognized an implied obligation to convey marketable title, which includes the delivery of a deed with the usual covenants, i.e., a warranty deed. The court cited established Minnesota case law to support this principle and concluded that plaintiffs were entitled to demand such a deed under the facts of the case.

The court further found that the new Wright Products, Inc. (corporation No. 2) took over the assets of the original corporation subject to the lease-option contract, thus binding it to the obligations therein.

Holding and Implications

The Supreme Court of Minnesota affirmed the trial court's order denying defendant's motion for a new trial and upheld the judgment requiring defendant to specifically perform the option agreement by conveying the property by warranty deed to plaintiffs.

The direct effect is that defendant must comply with the option agreement and convey marketable title by warranty deed to either Building Industries, Inc. or Bernard A. VanderHeyden. The opinion does not establish new precedent beyond affirming established principles regarding corporate dissolution formalities, sufficiency of tender to exercise options, and implied obligations to convey marketable title when the contract is silent on deed form.

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BUILDING INDUSTRIES, INC., AND ANOTHER v. WRIGHT PRODUCTS, INC. Reported in 62 N.W.2d 208.

Corporations — dissolution — limitation of activities — necessity of filing notice.

1. The provisions of M.S.A. 300.59, limiting the activities of a corporation after its termination, are not applicable where there was no evidence that the certificate of dissolution of corporate existence had been filed as required by § 301.56.

Vendor and purchaser — option agreement — exercise of option by tender of price — sufficiency of evidence.

2. The evidence supported the trial court's conclusion that the tender of the purchase price was sufficiently definite to exercise the option for purchase of the realty involved.

Same — same — obligation to transfer marketable title.

3. Where an option agreement is silent as to the type of conveyance required, there is an implied obligation on the part of the obligor to transfer marketable title.

Same — same — right to demand warranty deed.

4. Under the facts and circumstances of the instant case plaintiffs were entitled to demand that the conveyance be made by warranty deed.

FRANK T. GALLAGHER, JUSTICE.

This is an appeal from an order of the district court denying defendant's alternative motion for amended findings of fact and conclusions of law or for a new trial. The action was heard by the court without a jury and resulted in judgment for plaintiffs requiring defendant to specifically perform its option agreement by conveyance of certain real estate.

In 1940, a corporation under the name of Wright Products, Inc., was organized as a Minnesota corporation. It subsequently acquired the real estate which is the subject of this action. In June 1944, voluntary proceedings were commenced for the dissolution of Wright Products, Inc. In January 1946, Building Industries, Inc., one of the plaintiffs here, leased the real estate involved for a term of five years. The lease provided in part:

"Lessor gives to Lessee the privilege of purchasing the said premises at any time before the expiration of this lease for $8500.00."

The lease was executed in the name of Wright Products, Inc., as lessor and was signed by F. J. Wellmerling, as president, and A. H. Hauer, as secretary. Wellmerling had also been appointed trustee for the dissolution of Wright Products, Inc. The corporation which is the defendant in this action was organized on December 31, 1947, also under the name of Wright Products, Inc., and allegedly has the same officers and shareholders as the Wright Products, Inc., dissolution of which was begun in 1944.

On November 13, 1948, Building Industries, Inc., wrote defendant indicating its intention to exercise its option to purchase the leased premises and requested that defendant clear the title. In response to this request, defendant successfully prosecuted an action to quiet title to the premises involved.

On January 31, 1951, A. H. Markert, an attorney, made a purported tender to defendant of the purchase price stated in the option agreement. He claimed to represent both Building Industries, Inc., and Bernard A. VanderHeyden, who, it appears, had agreed to purchase the interest of Building Industries, Inc., under the lease and option agreement and who is also plaintiff in this action. Defendant rejected this purported tender, and both plaintiffs brought action for specific performance of the option agreement. The trial court ordered that the conveyance be made by warranty deed to either Building Industries, Inc., or to Bernard A. VanderHeyden.

1. On appeal, defendant first urges that the lease was void ab initio since it was entered into after the corporation organized in 1940 had been terminated. M.S.A. 300.59, prior to 1951, provided:

"Every corporation whose existence terminates by limitation, forfeiture, or otherwise shall continue for three years thereafter for the purpose of prosecuting and defending actions, closing its affairs, disposing of its property, and dividing its capital, but for no other purpose."

Defendant argues that, since the lease could not have been performed within the three years referred to in § 300.59, it was void ab initio. We have been referred to no authority supporting this proposition, and our independent research has revealed none. In any event, we deem it unnecessary to decide this issue since we conclude that the trial court correctly decided that there was no evidence that the existence of the original Wright Products, Inc., had been terminated so as to render § 300.59 applicable.

Section 301.56 provides:

"When a corporation has been completely wound up, the court, if the proceeding is subject to the supervision of the court, shall make an order adjudging the corporation to be dissolved; and if the proceeding is out of court, the trustee or trustees shall sign and acknowledge a certificate stating that the corporation has been completely wound up and is dissolved.

"The order or certificate of dissolution shall be filed for record with the secretary of state and thereupon the corporate existence shall terminate."

No evidence was presented to indicate that such a certificate had been filed. Section 301.11 provides that the filing of such a certificate shall not constitute constructive notice of its contents. Therefore, the trial court could not properly have found that the original Wright Products, Inc., had been terminated for purposes of applying § 300.59.

2. Defendant next contends that the manner in which the tender of the purchase price was made on behalf of plaintiffs was so indefinite and confusing that it was not effective to exercise the option. According to defendant's claim, this confusion arose largely from the fact that the tender was accompanied by a request that the deed to the leased premises be made to Bernard A. VanderHeyden, the assignee of the interest of Building Industries, Inc., under the lease and option agreement. Defendant claims that it was unaware that an effective assignment had been made from Building Industries, Inc., to VanderHeyden and so did not feel safe in making the conveyance to him. The record, however, does not indicate that any confusion in fact existed at the time the tender was refused. It further appears that defendant was offered the alternative of conveying directly to Building Industries, Inc., its original lessee, if it felt more secure in so doing. We feel that the trial court was correct in its memorandum in observing that defendant's objection to the tender was a mere technicality lacking in merit. See, Poehler v. Reese, 78 Minn. 71, 80 N.W. 847.

3-4. Finally, defendant contends that it was justified in refusing plaintiffs' tender, since the tender was accompanied by a demand for a warranty deed to the premises and plaintiffs were not entitled to make such a demand. The option agreement was silent as to the type of conveyance required. In such circumstances there exists an implied obligation to convey marketable title. Drake v. Barton, 18 Minn. 414 (462); Summers v. Midland Co. 167 Minn. 453, 209 N.W. 323, 46 A.L.R. 816; 6 Dunnell, Dig. Supp. § 10022. In Drake v. Barton, 18 Minn. 414 at p. 420 (462 at p. 469), the court stated:

"* * * in every contract for the sale of lands, the vendor, unless he acts in a mere ministerial or fiduciary capacity, or there is something in the terms of the contract or attendant circumstances which shows a contrary intention, engages not merely to give a good title, but also to convey by a deed containing the usual covenants.

* * * * *

"With respect to this state, we think we are justified in adding that a deed with 'the usual covenants for title,' would be considered to include what is understood by 'a warranty deed with full covenants,' as in the judgment in question it is expressed."

It is our opinion that under the circumstances here plaintiffs were entitled to demand that the conveyance be made by means of a warranty deed. Drake v. Barton, supra; Fleckten v. Spicer, 63 Minn. 454, 65 N.W. 926.

We conclude that the record amply sustains the finding of the trial court:

"* * * when Wright Products, Inc. No. 2 took over the assets of corporation No. 1, it took over the real estate herein referred to, with other properties, subject to the provisions of said lease-option contract with plaintiff Building Industries, Inc."

Affirmed.