Blackhawk Heating & Plumbing Co., Inc. v. Data Lease Financial Corp.

• Decision Date: 24 October 1974
• Docket Number: No. 45003,45003
• Citation: 302 So.2d 404
• Court: Florida Supreme Court
• Parties: BLACKHAWK HEATING & PLUMBING CO., INC., an Illinois corporation, and Andrew Machata, Petitioners, v. DATA LEASE FINANCIAL CORP., a Florida corporation, Respondent.

Page 404

302 So.2d 404

BLACKHAWK HEATING & PLUMBING CO., INC., an Illinois corporation, and Andrew Machata, Petitioners, v. DATA LEASE FINANCIAL CORP., a Florida corporation, Respondent.

No. 45003.

Supreme Court of Florida.

Oct. 24, 1974.

Rehearing Denied Nov. 22, 1974.

Jos. D. Farish, Jr. and F. Kendall Slinkman, of Farish & Farish, West Palm Beach, for petitioners.

Marshall M. Criser and Robert T. Scott, of Gunster, Yoakley, Criser, Stewart & Hersey, Palm Beach, for respondent.

ADKINS, Chief Justice.

By petition for certiorari, we have for review a decision of the District Court of Appeal, Fourth District (Blackhawk Heating & Plumbing Co. v. Data Lease Financial Corp., 287 So.2d 118 (Fla.App.4th, 1973), which allegedly conflicts with prior decisions of this Court and the District Courts of Appeal on the same point of law. Fla.Const., art. V, § 3(b)(3), F.S.A.

For clarity, the petitioners, plaintiffs in the trial court, are referred to as 'Blackhawk and Machata'; the respondent, defendant below, is referred to as 'Data Lease.'

In September, 1969, Data Lease entered into an agreement with the 'Cohen group' to purchase 870,000 shares of the common stock of Miami National Bank for a purchase price of $10,440,000. Under the terms of the purchase, Data Lease was obligated to pay $2,160,000 by July 1, 1970, but found it impossible to meet this immediate cash obligation.

Talmo, President of Data Lease, sought the assistance of Machata in borrowing $2,000,000. Machata proposed that he purchase 25 per cent of Data Lease's 870,000 shares of stock, but, at Talmo's request, this proposal was abandoned for tax reasons. Talmo proposed that Data Lease pay $1,500,000 to the Cohen group and secure the release of 200,000 shares in the bank which Data Lease agreed to pledge against the new $2,000,000 note. The remaining $500,000 of the $2,000,000 loan (except $40,000 in loan expense advanced by Machata) would be used by Data Lease as it saw fit in its own corporate activity. The Central States, Southeast and Southwest Areas' Pension Fund agreed to the proposal, in view of the credit rating of Blackhawk and Machata.

The initial proposition that Machata would immediately purchase 25 per cent of Data Lease's position in the bank was discarded at Talmo's suggestion that Machata's initial participation be in the form of an option to purchase, because so long as Data Lease maintained an 80 per cent ownership of the bank stock, Data Lease would qualify to file a consolidated tax return with the bank. 26 U.S.C. 1501 et seq.

Data Lease had accumulated operating losses of $3,760,000 over a period of three years prior to the proposed stock purchase. Control of the bank would permit Data Lease, by separate agreement with the bank, to obtain payments from the bank of approximately 95 per cent of the money that the bank would otherwise have paid to the Internal Revenue Service but for the aspect of consolidated tax reporting. These payments are referred to as 'upstream' tax payments. The parties could foresee immediate financial benefit to Data Lease by use of the upstream tax payments.

On May 18, 1970, Machata, Talmo and others went to Chicago and executed the option agreement which gave rise to this litigation. On the same day as the execution of the option agreement, a $2,000,000 loan was made by the Pension Fund. Under the terms of this loan, Blackhawk, Machata and Data Lease were co-obligors to the Pension Fund in the amount of $2,000,000. The promissory note was secured by a pledge agreement of the 200,000 shares of bank stock released by the Cohen group. Machata guaranteed the loan personally.

$1,500,000 of the $2,000,000 loan was paid directly to the Cohen group as partial payment for release of $200,000 shares of bank stock which was to go to Blackhawk upon exercise of the option. $40,000 of the loan was paid to Machata as reimbursement for money advanced by him personally, relative to initial loan costs. The balance, $460,000, went directly to Data Lease to be used as it saw fit.

Under the option agreement Blackhawk could purchase 217,500 shares (or 25 per cent of the 870,000 shares) from Data Lease. The purchase price was to be computed upon a rather complex mathematical formula set forth in the agreement.

The portion of the option agreement primarily involved in this litigation reads as follows:

6(b) 'Any cash flow benefit, including any tax benefits, derived by Data as a consequence of its holding, hypothecation, assignment, pledge, etc., of MNB Stock shall inure proportionately to Blackhawk in calculation of any payments due between the parties.'

Blackhawk, by lending its credit to Data Lease, not only rescued Data Lease from financial problems with reference to its purchase of the bank stock, but actually placed Data Lease in a position where, as an 80 per cent stockholder in the bank, Data Lease could derive substantial income as a result of the stock ownership. So long as Data Lease continued to retain an 80 per cent interest in the bank, it could avail itself of the advantage of consolidating its tax returns with the bank. Data Lease did so avail itself and obtained substantial benefit as a result thereof.

On January 25, 1971, within the option period, Blackhawk notified Data Lease in writing that it was exercising its option to purchase the shares of stock, taking the position that sufficient 'cash-flow benefits' had been derived so that the option could be exercised. Blackhawk's position was that the 'cash-flow benefits' received by Data Lease more than offset the cash items due Data Lease on exercise of the option. Blackhawk requested a review of the books of the bank and Data Lease so that a final closing statement could be prepared and the correct calculation made. Data Lease refused to honor the option agreement and Blackhawk brought this suit for specific performance. Data Lease defended on the ground that the term 'cash-flow benefit' was vague and indefinite, so that the agreement was void and unenforceable. Also, Data Lease contended the option was not properly exercised.

A Special Master was appointed and his report demonstrates that the income of Data Lease and its subsidiary corporations increased after the $2,000,000 loan. For example, for the period from July 1, 1970, through June 30, 1971, the direct or indirect increase in net income to Data Lease as a result of its performance of management services was $185,790, and for the period July 1, 1971, through June 30, 1972, the direct or indirect increase in net income to Data Lease for such services was $104,559. The amount of 'upstream' tax payments to February 28, 1971, the date of the option exercise, was stipulated to be $617,179.87. Tax payments received by Data Lease from the bank for the period under review by the Special Master would directly increase the net income of Data Lease in the amount of $1,264,966.30. It is apparent from the record that Data Lease and its subsidiary corporation received many financial benefits, while Blackhawk received nothing.

The trial court held that the above-quoted paragraph 6(b) of the option agreement was an essential part thereof, and that it was so vague, indefinite and uncertain as to render the entire agreement insufficient to justify specific performance. In addition, the Court held that even if the contract was not enforceable for the abovementioned reasons, Blackhawk failed to properly exercise the option. Upon appeal, the District Court of Appeal affirmed the judgment of the trial court.

In the case of Shouse v. Doane, 39 Fla. 95, 21 So. 807 (1897), the following rule of contract interpretation was recognized by this Court:

'Where the terms of a written agreement are in any respect doubtful or uncertain, or if the contract contains no provisions on a given point, or if it fails to define with certainty the duties of the parties with respect to a particular matter or in a given emergency, and the parties to it have, by their own conduct, placed a construction upon it which is reasonable, such construction will be adopted by the court, upon the principle that it is the duty of the court to give effect to the intention of the parties where it is not wholly at variance with the correct legal interpretation of the terms of the contract.' (p. 810)

The loan of credit by Blackhawk and Machata was a valuable consideration (see 17 C.J.S. Contracts, § 81) and financial benefits flowed to Data Lease as a result of this loan of credit. The parties intended that Blackhawk and Machata should receive a credit amounting to 25 per cent of these cash benefits derived by data Lease. The only question is a determination of the amount of the cash benefits which were attributable to the loan of credit by Blackhawk. The fact that each possible cash benefit which might ensue was not listed with particularity should not destroy the agreement of the parties. The term 'cash-flow benefit' should be construed in such a manner as to give the phrase a meaning consistent with the apparent object of the parties in entering into the contract. As stated by this Court in Gendzier v. Bielecki, 97 So.2d 604 (Fla.1957),

'The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs--not on the parties having meant the same thing but on their having said the same thing.' (p. 608)

Also, in St. Lucie County Bank & Trust Co. v. Aylin, 94 Fla. 528, 114 So. 438 (1927), this Court said:

'In the construction of written contracts it is the duty of the court, as near as may be, to place itself in the situation of the parties, and from a consideration of the surrounding circumstances, the occasion, and apparent object of the parties, to determine the meaning and intent of the language employed.' (p. 441)

The circumstances surrounding the negotiations and the object of the parties demonstrate that Blackhawk should have 25 per cent of the profit derived from Data...