Bank of California, N.A. v. First Mortgage Company
| Decision Date | 17 April 1972 |
| Docket Number | No. 910--I,910--I |
| Citation | 6 Wn.App. 718,495 P.2d 1057 |
| Parties | , 54 A.L.R.3d 785 The BANK OF CALIFORNIA, N.A., as Executor of the Estate of Maury Setzer, Deceased, Respondent, v. FIRST MORTGAGE COMPANY, a Washington corporation, Defendant, Mary Messo et al., Appellants. |
| Court | Washington Court of Appeals |
Williams, Lanza, Kastner & Gibbs, and William D. Cameron, Seattle, for appellants.
Robert L. Butler, Phyllis Cavender, Seattle, for respondent.
This action involves the determination of the value of the stock of a corporation according to the terms of a buy-out agreement of the stockholders. The cause was tried to the court without a jury, and resulted in findings of fact, conclusions of law and judgment placing a higher value upon the stock than was fixed by a firm of certified public accountants. From this judgment the surviving stockholders appeal.
The facts may be summarized as follows: On February 1, 1964, eight individuals who were employees of, and who owned all of the stock of, First Mortgage Company entered into an 'amended agreement among stockholders,' whereby the company was given the option to purchase the shares of a stockholder should he die or retire from the company. The agreement specified that the purchase price was to be the book value of each share of stock as shown on the last preceding balance sheet of the company, 'adjusted, however, for operations of the Company from the end of this last preceding fiscal year to the date of the event which gave rise to the particular option then involved.' The agreement also provided that the balance sheet was to be the one prepared and adjusted by the certified public accountants then serving the company and
Maury Setzer, the owner of a majority of the stock, died on June 1, 1969. The Bank of California was confirmed as executor of his will, and the First Mortgage Company timely exercised it option under the agreement to purchase all of his stock. The accounting firm then serving the company prepared an adjusted balance sheet dated May 31, 1969, the day preceding Mr. Setzer's death. Note 2 of this adjusted balance sheet is as follows:
2. Notes receivable--Collateralized by mortgages:
Included among notes receivable are fourteen completed construction loans on which there were balances due of $198,085.67 at May 31, 1969. Since the interest rates embodied in these notes are lower than the current prevailing rate, the balance sheet reflects an allowance of $27,378.05 for the decline in market value attributable to anticipated discounts upon subsequent disposition.
In Note 2 of the balance sheet of October 31, 1968, and in Note 2 of the balance sheets of previous years, no allowance was made for the decline in Market value of notes receivable due to an increase in prevailing interest rates.
The purpose of the Bank of California in bringing this action was to have a redetermination of the book value of the stock by removing the allowance for the decline in market value of the 'Notes preceivable--Collateralized by mortgages,' the effect of which was to reduce the assets of the company by $27,378.05. It is the bank's contention that the allowance for depreciation made for the first time in the adjusted balance sheet of May 31, 1969, did not represent an operation of the company during the period October 31, 1968, to May 31, 1969, is not within sound accounting practice, and does not conform to the requirements of the agreement. The defendants, who are the owners of all of the outstanding stock of the company other than that owned by Mr. Setzer's estate, contend that the certification of the accounting firm finally settled the value of the stock.
The court found upon substantial evidence that the market value of the notes had diminished as interest rates had risen, and that such decline in value was not...
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