American Bank and Trust Co. of Pennsylvania v. Lied

• Decision Date: 21 December 1979
• Citation: 487 Pa. 333,409 A.2d 377
• Parties: AMERICAN BANK AND TRUST COMPANY OF PENNSYLVANIA, Executor of the Estate of Ray E. Lied, Deceased, Appellee, v. June G. LIED, Executrix of the Estate of Eugene R. Lied, Deceased, Appellant.
• Court: Pennsylvania Supreme Court

409 A.2d 377

487 Pa. 333

AMERICAN BANK AND TRUST COMPANY OF PENNSYLVANIA, Executor of

the Estate of Ray E. Lied, Deceased, Appellee, v. June G. LIED, Executrix of the Estate of Eugene R. Lied, Deceased, Appellant.

Supreme Court of Pennsylvania.

December 21, 1979

Argued Oct. 10, 1979.

James D. Crawford, Lawrence E. Stengel Philadelphia, for appellant.

Lawrence J. Ruggiano, George J. Morgan, Lancaster for appellee.

Before EAGEN C. J., and O'BRIEN, ROBERTS, NIX, MANDERINO, LARSEN and FLAHERTY, JJ.

OPINION

LARSEN Justice.

Prior to October 3, 1960, Ray E. Lied and his son, Eugene R. Lied, conducted a partnership known as "Ray E. Lied & Son." On or about October 3, 1960, Ray and Eugene Lied organized a closely-held corporation, "Ray E. Lied & Son, Inc." to which was transferred most of the property, assets, business and good will of the partnership. The only stockholders were Ray and Eugene Lied, each holding 500 shares.

A stock purchase agreement was executed on October 20, 1960 between the stockholders. This agreement provides:

WHEREAS, the Stockholders desire to promote their mutual interests and the interest of the corporation by imposing certain restrictions and obligations on themselves, the corporation and on the shares of stock of the corporation:

NOW THEREFORE, in consideration of the mutual promises covenants and agreements of the parties hereto, it is mutually agreed:

4. Purchase Upon Death: Upon the death of a stockholder all the shares of the stock of the corporation owned by the deceased stockholder and to which he or his personal representative shall be entitled shall be sold and purchased as herein provided.

(a) Obligation of Corporation: The corporation shall purchase from the decedent's personal representative and the decedent's personal representative shall sell all the shares of the stock of the corporation owned by the decedent and to which the decedent or his personal representative shall be entitled at the price determined in accordance with Paragraph 2. Settlement shall be made not more than sixty days following the date of the qualification of the personal representative.

(b) Insurance: If the corporation shall receive any proceeds of any policy on the life of the decedent, such proceeds shall be paid by the corporation to the decedent's personal representative to the extent of the purchase price of the decedent's stock and such payment shall be deemed on account of such purchase price.

(c) Use of Surplus: If at the time the corporation is required to make payment of the purchase price for the stock of a deceased stockholder, its surplus, including the proceeds of any life insurance policy is insufficient for such purpose, (1) the entire available surplus shall be used to purchase part of the stock of the deceased stockholder, and (2) the corporation and the stockholders shall promptly take all required action to reduce the capital stock of the corporation to the extent necessary for the redemption of the unpurchased stock. If the corporation shall, nevertheless, be unable to or refuse to purchase all of the decedent's stock, the obligation of the corporation with respect to the shares which the corporation shall be unable or refuse to purchase shall be deemed assumed by the surviving stockholders.

(d) Dissolution: If all the stock of the deceased stockholders is not purchased or redeemed and payment made therefore in accordance with the foregoing provisions, then the stockholders shall within ninety days after qualification of such personal representative vote in favor of the immediate dissolution of the corporation and file an appropriate certificate of dissolution and thereafter the stockholders shall take all other necessary action to liquidate the corporation and such dissolution and liquidation shall be undertaken by them with all reasonable speed and distribution of the assets shall be made as promptly as possible.

(9) Benefit: This agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns. . . .

Eugene Lied died on January 6, 1974. The surviving stockholder, Ray Lied, died nine days later on January 15, 1974. Appellee, the executor of the estate of Ray Lied, attempted to exercise the right and obligation of the corporation, and of Ray Lied, to purchase the stocks that had been held by Eugene Lied from his (Eugene's) estate. The executrix of Eugene Lied's estate, appellant herein, refused to sell the stock. Appellee then filed a Petition for Specific Performance of the Stock Purchase Agreement requesting the Orphans' Court Division, Court of Common Pleas of Lancaster County, to order appellant to sell the 500 shares of stock held by Eugene Lied to the corporation at the price provided in the stock purchase agreement. ^[1]

A hearing was held on the petition on June 20, 1975, before the Honorable Anthony R. Appel. That court held that the stock purchase agreement obligated the corporation to purchase Eugene Lied's stock from his estate. Consequently, the court directed the specific performance requested. The purchase price of $133,904.00 was established by the agreement (paragraph 2) at book value at the close of the fiscal year preceding the date of the death of the stockholder. The estate of Ray Lied, as the sole stockholder of the corporation, would, if the decree for specific performance is upheld, be entitled to all of the corporation's property and assets valued at approximately.$540,000.00. It is the discrepancy in the amounts the estates of the two stockholders will respectively receive from the corporation which prompts the present challenge to the decree for specific performance.

Appellant filed exceptions to the orphans' court decree. The exceptions were denied and this direct appeal was taken from that denial.

Appellant contends enforcement of the stock purchase agreement would frustrate its purpose. She argues the death of the surviving stockholder, Ray Lied, nine days after the death of Eugene Lied prevented the accomplishment of the objective of the agreement which, she maintains, was to preserve the management and control of the corporation in the survivor of the two original stockholders; the fortunes of the corporation would thus rise or fall on the strength or weakness of the survivor, and his estate would benefit or suffer accordingly.

The orphans' court was not persuaded by this argument, nor are we. The stock purchase agreement was, ostensibly, designed to retain management and control of the corporation in the survivor and to insulate the corporation from interference from outsiders For the life of the survivor ; but this retention of control was obviously not intended to last forever as the parties were acutely aware that the survivor would also someday die.

The stockholders realized that either of them might be the first to die. They, therefore, drafted an agreement whereby the estate of the first to die would receive a sum certain fixed upon his death while the second (and his estate) would realize the gains Or losses accruing to the corporation after the first stockholder died. See Brown Estate, 446 Pa. 401 409, 289 A.2d 77, 89 (1972). This agreement was enforceable by...