Baker v. Ayres and Baker Pole and Post, 04-221.

• Decision Date: 22 August 2005
• Docket Number: No. 04-221.,04-221.
• Citation: 117 P.3d 1234,2005 WY 97
• Parties: Joan BAKER, an individual, as a representative shareholder, and as personal representative of the Estate of Alvin R. Baker, Appellant (Plaintiff), v. AYRES AND BAKER POLE AND POST, INC., a Wyoming corporation; Larry W. Ayres, an individual; and Karan L. Ayres, an individual, Appellees (Defendants).
• Court: Wyoming Supreme Court

117 P.3d 1234

2005 WY 97

Joan BAKER, an individual, as a representative shareholder, and as personal representative of the Estate of Alvin R. Baker, Appellant (Plaintiff), v. AYRES AND BAKER POLE AND POST, INC., a Wyoming corporation; Larry W. Ayres, an individual; and Karan L. Ayres, an individual, Appellees (Defendants).

No. 04-221.

Supreme Court of Wyoming.

August 22, 2005.

COPYRIGHT MATERIAL OMITTED

Clark D. Stith of Greenhalgh, Beckwith, Lemich, Stith & Cannon, P.C., Rock Springs, Wyoming, for Appellant. Argument by Mr. Stith.

Ford T. Bussart and William B. Payne of Bussart, West & Tyler, P.C., Rock Springs, Wyoming, for Appellees. Argument by Mr. Payne.

Before HILL, C.J., and GOLDEN, KITE, VOIGT, and BURKE, JJ.

KITE, Justice.

[¶ 1] After Alvin Baker passed away, the proceeds of a life insurance policy issued in his name were delivered to the named beneficiary, his wife, Joan Baker. Mrs. Baker then sought payment from Mr. Baker's business associates, Larry and Karan Ayres, and the corporation in which he and Mr. Ayres were the sole shareholders, Ayres and Baker Pole and Post, Inc. (the Company) for the value of Mr. Baker's shares in the Company. The Ayres and the Company asserted that the proceeds of Mr. Baker's life insurance policy were intended to be applied against the value of his interest in the Company, such that Mrs. Baker was only entitled to payment of the difference between the insurance proceeds and the value of the stock.

[¶ 2] After the Company refused to pay Mrs. Baker the full value of Mr. Baker's shares, she brought suit in district court. On cross-motions for summary judgment, the district court ruled in favor of the Ayres and the Company and this appeal followed. We hold the Stock Purchase Agreement clearly and unambiguously required the Company to procure and own insurance on the lives of Mr. Baker and Mr. Ayres. The evidence was undisputed that the Company did not purchase and own the life insurance required by the Stock Purchase Agreement. Thus, no genuine issue of material fact existed on Mrs. Baker's breach of contract claim and she was entitled to judgment as a matter of law on that issue. However, we also find from the evidence presented that genuine issues of material fact existed on the Ayres' and the Company's claims for imposition of a constructive trust and promissory estoppel. Therefore, we hold that the district court erred in granting summary judgment as to those claims.

[¶ 3] Reversed and remanded.

ISSUES

[¶ 4] Mrs. Baker presents seven issues for consideration:

1. Whether the district court erred by imposing a constructive trust in favor of the Corporation on life insurance proceeds from a personal life insurance policy paid to Widow Baker.

2. Whether the district court erred in finding promissory estoppel against Widow Baker where there was no promise by Widow Baker or her late husband to buy life insurance for the Corporation.

3. Whether the district court erred in finding that Widow Baker breached the provisions of a Stock Purchase Agreement where Widow Baker complied with all of her obligations under that agreement.

4. Whether the district court should have granted Widow Baker's motion for partial summary judgment for breach of contract based on the Corporation's failure to pay the amounts owing to Widow Baker under the Stock Purchase Agreement.

5. Whether the district court should have granted Widow Baker's motion for partial summary judgment for anticipatory breach of contract based on the Corporation's clear and unequivocal announcement that the Corporation had no intention of paying what it owed under the Stock Purchase Agreement.

6. Whether the district court should have computed interest on amounts owing by the Corporation to Widow Baker at eight percent (8%) from October 31, 2000, the date of Mr. Baker's death, as provided in the Stock Purchase Agreement, rather than arbitrarily giving the Corporation a 61 month interest free grace period until June 2003, or, in the alternative, whether statutory interest should be imposed.

7. Whether the district court erred by granting summary judgment to the Corporation and the Ayres on causes of action for constructive trust, promissory estoppel and breach of contract where neither the Corporation nor the Ayres ever pleaded those causes of action.

The Ayres and the Company present three issues:

A. Whether the District Court correctly granted Appellees' Motion for Partial Summary Judgment enforcing the terms and conditions of a corporate Stock Purchase Agreement?

B. Whether the District Court correctly found clear and convincing evidence to establish a constructive trust upon life insurance proceeds to fund the terms and conditions of a corporate Stock Purchase Agreement?

C. Whether the District Court correctly imposed the doctrine of promissory estoppel to apply proceeds of a life insurance [policy] to fund the terms and conditions of a corporate Stock Purchase Agreement?

FACTS

[¶ 5] On May 1, 1972, Alvin Baker and Larry Ayres formed a partnership to operate a saw mill in Mountain View, Wyoming. The partnership existed until 1993, when both men and their wives, Joan Baker and Karan Ayres,¹ formed a Wyoming corporation to operate the saw mill.

[¶ 6] In conjunction with the formation of the Company, on April 26, 1993, the Bakers and the Ayres executed a Stock Purchase Agreement which provided that they each owned half of the corporate stock and, upon the death of Mr. Baker or Mr. Ayres, the surviving shareholder would succeed to full ownership and control of the Company. In order to effectuate a buy-out of the deceased stockholder's share, the agreement provided that "the company has, or plans on procuring insurance" on the lives of both men, "which [insurance policies] will be owned by the company." The agreement further provided that upon the death of Mr. Ayres or Mr. Baker, the proceeds of the deceased's insurance policy would be used to purchase his interest in the Company. Thus, the life insurance policies procured by the Company were intended to fund a buyout in the event of the death of one of the shareholders, thus securing the surviving member's succession to sole ownership and control of all stock.

[¶ 7] In 1988, five years before the formation of the Company and execution of the Stock Purchase Agreement, Mr. Ayres procured a life insurance policy and named the partnership as beneficiary. In 1990, Mr. Baker likewise procured a life insurance policy; however, he named Mrs. Baker as beneficiary. The Company was never named beneficiary of Mr. Baker's life insurance policy, before or after execution of the Stock Purchase Agreement, and Mr. Baker never transferred or assigned his insurance policy to the Company. Additionally, the Company never procured a separate insurance policy on Mr. Baker's life naming itself as beneficiary.

[¶ 8] Mr. Baker died on October 31, 2000, and Mrs. Baker received the benefits under his life insurance policy. Mrs. Baker subsequently asserted her right to the value of the Bakers' share of the corporate stock which was valued at $719,000.² The Ayres and the Company responded that the proceeds from Mr. Baker's life insurance policy should be applied to the redemption price of the Baker stock pursuant to the Stock Purchase Agreement. They asserted that the life insurance policy procured by Mr. Baker in 1990 was the policy procured on the life of Mr. Baker referred to in the Stock Purchase Agreement and the Bakers breached the agreement by failing to transfer the policy to the Company. They contended the life insurance policy proceeds of $500,000 should offset the $719,000 worth of stock, resulting in a payment by the Company to Mrs. Baker in the amount of $219,000.

[¶ 9] Mrs. Baker claimed she was the beneficiary under her deceased husband's life insurance policy, making the insurance company's payment of the $500,000 proceeds to her appropriate. In addition, she claimed the Company was obligated to pay her the full value of the Baker corporate stock, $719,000, pursuant to the terms of the Stock Purchase Agreement.

[¶ 10] When the Company refused to pay the entire $719,000 plus interest, Mrs. Baker filed two actions in district court. First, she filed a shareholder's derivative action to compel election of directors, allow inspection of books and records of the Company, and compel the Company to honor its obligations under the buy-out provision of the Stock Purchase Agreement. Second, she filed a complaint alleging that the Ayres and the Company breached the Stock Purchase Agreement by failing to redeem the Baker stock, repudiated the agreement when they refused to pay the full value of the Baker stock, and breached Mr. Baker's employment contract by failing to pay wages due. Mrs. Baker also alleged Mr. Ayres breached his fiduciary duty by paying bonuses to himself each year after Mr. Baker's death and not paying equal bonuses to her. In her second complaint, Mrs. Baker also requested an accounting of partnership property.

[¶ 11] The Ayres and the Company filed answers generally denying the claims. They also filed a counterclaim for declaratory judgment, seeking a declaration of the rights and obligations of the parties under the Stock Purchase Agreement and with respect to certain corporate assets. Specifically, they sought judgment declaring: the Bakers breached the Stock Purchase Agreement by failing to effectuate a change in beneficiary on Mr. Baker's insurance policy; the Bakers held the insurance policy in constructive trust for the benefit of the Ayres and the Company; upon payment of the $500,000 policy proceeds, Mrs. Baker breached the Stock Purchase Agreement by failing to surrender her 1,000 shares of stock; and, Mrs. Baker was entitled to payment from the Ayres and the Company of $219,000 plus interest in the amount of $7,200. The Ayres and the Company also moved to consolidate the actions filed by Mrs. Baker and to deposit the amount they claimed...