Blakesley v. Johnson, 50344

• Decision Date: 05 April 1980
• Docket Number: No. 50344,50344
• Parties: Robert BLAKESLEY, Plaintiff-Appellee, v. Roy L. JOHNSON, Defendant-Appellant, and V. A. Lathem Water Service, Inc., Defendant.
• Court: Kansas Supreme Court

Page 908

608 P.2d 908

227 Kan. 495

Robert BLAKESLEY, Plaintiff-Appellee, v. Roy L. JOHNSON, Defendant-Appellant, and V. A. Lathem Water Service, Inc., Defendant.

No. 50344.

Supreme Court of Kansas.

April 5, 1980.

Syllabus by the Court

1. Whether or not a contract is entire or divisible is a question of construction to be determined by the court according to the intention of the contracting parties as ascertained from the contract itself and upon a consideration of all the circumstances surrounding the making of it.

2. Rescission depends upon the intent of the parties as shown by their words, acts, or agreement. Parties to a contract may mutually rescind the transaction although neither party had a right to compel a rescission.

3. Corporate directors and officers are under a very strict fiduciary duty in their relations both to the corporation and to its stockholders.

4. Where knowledge of facts affecting the value or price of stock comes to an officer or director of a corporation by virtue of his office or position, he is under a fiduciary duty to disclose such facts to other stockholders before dealing in company stock with them, even if they too are directors or officers, and regardless of whether these facts pertain to intracompany matters, such as the value of assets, or relate to events "outside" the corporation, such as the existence of favorable contracts, the availability of additional financing, or any other matters which would tend to increase the value of the corporation's stock.

5. Any unfair transaction undertaken by one in a fiduciary relationship may result in liability for unjust enrichment of the fiduciary. Where the fairness of a fiduciary transaction is challenged, the burden of proof is upon the fiduciary to prove by clear and satisfactory evidence that such transaction was fair and done in good faith.

6. Where the trial court found that corporate directors failed to meet the burden of proof in showing good faith and the fairness of certain questioned transactions, and where such finding is supported by competent evidence, the finding will not be disturbed on appeal.

R. H. Calihan, Jr. of Calihan, Green, Calihan & Loyd, Garden City, argued the cause and was on brief, for defendant-appellant.

Don O. Concannon of Concannon, Samson & Boelte, Hugoton, argued the cause and was on brief, for plaintiff-appellee.

SCHROEDER, Chief Justice:

This is an appeal in a civil action from a judgment of the trial court ordering Roy L. Johnson (defendant-appellant) to account to Robert Blakesley (plaintiff-appellee), a minority stockholder, for the latter's equitable share of the proceeds from the sale of corporate stock. The appellant raises several issues on appeal. Prior to trial the lower court granted a partial summary judgment, dismissing V. A. Lathem Water Service, Inc., as a defendant.

The trial court made 29 separate findings of fact and six conclusions of law. The factual findings are not challenged on appeal.

In August 1973, Blakesley began working as a truck driver for Johnson and V. A. Lathem Water Service, Inc.; within three weeks Blakesley assumed foreman duties. The business of V. A. Lathem Water Service Inc., was the delivery and removal of large quantities of water used in oil and gas exploration and production. The nature of the business required constant operation 24 hours per day, seven days per week.

On April 1, 1974, after eight months' employment, Blakesley entered into a stock purchase and employment contract with V. A. Lathem Water Service, Inc., and Johnson. Blakesley agreed to purchase 37 shares of the corporation's unissued stock, and agreed to assume duties as manager of the business. Blakesley promised to pay $50,000 for the stock over a twelve-year period, with 6% interest per annum, in annual installments of $5,625. The corporation promised to hold the 37 shares of stock in escrow until paid in full; Blakesley was given the right to vote the 37 shares at stockholders meetings. Blakesley was appointed manager of the corporation by the same agreement. Blakesley and Johnson agreed to yearly salaries of $15,000 for Johnson and $13,000 for Blakesley. In addition, Blakesley was promised a bonus of 15% of the net profit each year, with a minimum bonus of $7,500 guaranteed. Finally, Blakesley and Johnson made a "buy and sell agreement," which granted to each other the first option to purchase the corporate stock of the other and a second option to the corporation.

The trial court found the original contract between Blakesley and Johnson was prepared by Edwin Hooper, C.P.A., the corporation's accountant. The trial court specifically found that the contract was prepared "at the insistence of both" Blakesley and Johnson. The agreement was discussed among the three men, and revised. The contract was not submitted to or reviewed by an attorney, despite Hooper's suggestion that the parties consult an attorney for advice.

Johnson owned 110 shares of the 111 issued shares of stock; Johnson's wife owned the single share. The corporate charter authorized issuance of 250 shares at $100 per share. After the sale to Blakesley, the total outstanding shares numbered 148.

A stockholders meeting was held on April 1, 1974. Blakesley, Roy Johnson and Betty Johnson elected themselves to the board of directors. Roy Johnson was elected president of the corporation, Blakesley was elected vice-president, and Betty Johnson was elected secretary-treasurer.

Blakesley attended all stockholder and board of directors meetings. At the March 27, 1975, stockholder and board of directors meeting, Edwin Hooper reported the corporation's financial condition. Hooper, Blakesley and Johnson also discussed the salaries and management bonus. Sometime prior to August 1975 Blakesley conferred with Hooper about disposition of the corporate stock. Hooper advised Blakesley that his minority stock should sell for the same price per share as the majority stock.

As manager and stockholder of the corporation Blakesley knew the business demands, customers, equipment owned, and rates and volume of water supply. Blakesley's wife was also employed by the corporation to prepare invoices and bill the customers.

The trial court made the following pertinent findings of fact in regard to the actual discussions about the sale of the corporate stock:

"8. During the month of July, 1975, Don H. Carpenter, while on vacation from his duties in the Ulysses area as field engineer for Amoco Production Company, called defendant Roy Johnson by long distance telephone from Oklahoma to inquire whether he would be willing to sell the business of V. A. Lathem Water Service, Inc. At this time Johnson indicated that he would be willing to sell and the conversation was concluded with the agreement that the two of them would discuss the matter at a later time.

"9. Upon Don H. Carpenter's return from vacation, he went to the business office of V. A. Lathem Water Service, Inc. and conferred further with defendant Roy L. Johnson about the purchase of the business. At this time no firm agreement to purchase and sell was made by the parties and no purchase price was set. At a later time and place the parties again conferred and a base price of $370,000.00 subject to adjustments for certain assets and liabilities which were at that time undetermined but which the parties agreed would be ascertained and applied to the adjustment of such purchase price.

"18. During the forepart of August, 1975, plaintiff, Robert Blakesley and defendant, Roy Johnson had a conversation in the course of which plaintiff was advised that defendant intended to sell the business of V. A. Lathem Water Service, Inc. and that plaintiff had the first right to purchase the same if he desired. Shortly after this conversation plaintiff took his vacation and upon his return had another conversation with defendant, Roy L. Johnson, in which plaintiff inquired how much 'down money' defendant Johnson would require if plaintiff were to purchase the business. The defendant's response was that he would have to have $80,000.00 to $90,000.00 which would be approximately 27% of the total purchase price. During this conversation defendant informed plaintiff that he would protect him in the matter if he did not wish to dispose of his stock and make arrangements for him to retain his employment as manager of the corporation. At this point plaintiff informed defendant that he wanted out, would not be Number Two man to anyone, and that he wanted his money back on the purchase of the 37 shares of stock. Following this conversation defendant negotiated his transactions with Don H. Carpenter, Willynda H. Carpenter and V. A. Lathem Water Service, Inc. to the conclusion heretofore recited.

"19. During his conversations with Don H. Carpenter, defendant informed him that plaintiff had the first right to purchase the business of V. A. Lathem Water Service, Inc. and, following defendant's conversation with plaintiff, upon plaintiff's return from vacation, Defendant told Don H. Carpenter that Plaintiff did not want the business and that the stock necessary for control would be available to the Carpenters for purchase.

"22. At no time material herein did Plaintiff make any inquiry as to the financial condition of V. A. Lathem Water Service, Inc., or the value of the common stock of such corporation. Defendant, Roy Johnson, made no representations concerning the value of such stock to the Plaintiff, was ready, able and willing to recognize Plaintiff's right to purchase the business of V. A. Lathem Water Service, Inc. and told Plaintiff nothing about the affairs of the corporation or his sale transaction with the Carpenters that was untrue, but did not reveal to Plaintiff the sales price or share value in the sale of the business negotiated prior to the re-purchase.

"26. Plaintiff was aware of Roy L. Johnson's intent to sell his stock in V. A. Lathem Water Service, Inc. from the forepart...